Question
Williams Industries is attempting to choose the better of two mutually exclusive projects for expanding the firms production capacity. The relevant cash flows for the
Williams Industries is attempting to choose the better of two mutually exclusive projects for expanding the firms production capacity. The relevant cash flows for the projects are shown in the following table.
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| A | -$550,000 | 110,000 | 132,000 | 165,000 | 209,000 | 275,000 |
| B | -$358,000 | 154,000 | 132,000 | 105,000 | 77,000 | 55,000 |
The firms cost of capital is 15%. (A) Which project should the firm choose based on internal rate of return? (B) Which project should the firm choose based on net present value? (C) Which project should the firm choose based on profit index? Support all your answers with relevant calculations.
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Intermediate Financial Management
Authors: Eugene F. Brigham, Phillip R. Daves
12th edition
1285850033, 978-1305480698, 1305480694, 978-0357688236, 978-1285850030
