Question
You have an investment budget of $175,000 available to acquire one of three mutually exclusive projects. The cost and projected cash flows for the three
You have an investment budget of $175,000 available to acquire one of threemutually exclusive projects. The cost and projected cash flows for the three projects are shown in the table below:
Cash Flow | Project A | Project B | Project C |
Investment Cost | ($100,000) | ($175,000) | ($150,000) |
Year One Cash Flow | $50,000 | $120,000 | $45,000 |
Year Two Cash Flow | $40,000 | $60,000 | $45,000 |
Year Three Cash Flow | $30,000 | $10,000 | $40,000 |
Year Four Cash Flow | $10,000 | $10,000 | $48,000 |
Year Five Cash Flow | $5,000 | $10,000 | $48,000 |
Calculate the Payback Period for each project. (3 points)
Assuming the projects are comparable in risk and therefore have the same discount rate of 13%, calculate the Net Present Value for each project. (6 points)
Which project, if any, should you accept? Why? (3 points)
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