Question
You recently went to work for Ndejiku Company, a supplier of auto repair parts used in the after-market with products from Daimler, Chrysler, Ford, and
You recently went to work for Ndejiku Company, a supplier of auto repair parts used in the after-market with products from Daimler, Chrysler, Ford, and other automakers. Your boss, the chief financial officer (CFO), has just handed you the estimated cash flows for two proposed projects. Project X involves adding a new item to the firm's ignition system line. Project Y involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 4-year lives. Here are the projects' net cash flows (in thousands of kwachas):
| Year | 0 | 1 | 2 | 3 | 4 |
| Project X | -110,000 | 10,000 | 60,000 | 80,000 | 90,000 |
| Project Y | -110,000 | 90,000 | 60,000 | 30,000 | 10,000 |
If Ndejiku's cost of capital is 10%. Advise whether one or both of the projects should be accepted using:
- Payback period method if
- Projects are mutually exclusive
- Projects are Independent of each other
- Net Present Value (NPV) if projects are independent of each other
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
