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XYZ Inc. is considering two investment projects. The firms cost of capital is 13%, and its tax rate is 20%. The project details are as
XYZ Inc. is considering two investment projects. The firm’s cost of capital is 13%, and its tax rate is 20%. The project details are as follows:
Project 1:
- Cost: $2,500,000
- Expected life: 5 years
- Annual income before depreciation & tax: $700,000
- Depreciation: Straight-line
Project 2:
- Cost: $4,000,000
- Expected life: 6 years
- Annual income before depreciation & tax: $900,000
- Depreciation: Straight-line
Tasks:
- Calculate the NPV for each project.
- Compute the IRR for each project.
- Determine the payback period for each project.
- Evaluate the Profitability Index for each project.
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