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The following information is related to two proposed capital investment projects, projects X and Y. Each project has a cost of 10,000 and the cost
The following information is related to two proposed capital investment projects, projects X and Y. Each project has a cost of 10,000 and the cost of capital for both projects is 12%. The projects expected net cash flows are as follows:
Year | Project X | Project Y |
0 | (10,000) | (10,000) |
1 | 6,500 | 3,500 |
2 | 3,000 | 3,500 |
3 | 3,000 | 3,500 |
4 | 1,000 | 3,500 |
Required:
A: Calculate each projects nominal payback period, net present value (NPV), internal rate of return (IRR) [18% for project X], and profitability index (PI).
B: Should both projects be accepted if they are interdependent?
C: Which project should be accepted if they are mutually exclusive?
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