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Your company has identified the following two projects: Year 0 1 Cash flow A -$20,000 $12,000 $8,000 $2,000 $2,000 Cash flow B -$20,000 $4,000 C
Your company has identified the following two projects: Year 0 1 Cash flow A -$20,000 $12,000 $8,000 $2,000 $2,000 Cash flow B -$20,000 $4,000 C $8,000 $12,000 2 3 4 Suppose that the required rate of return is 10%. a. Compute NPV of Project A. (3 points) b. What C should be to make the two projects equally attractive to your company? (3 points) c. Suppose that IRR of project B is 12%. What C should be then? (3 points) d. Suppose C is the one you found in part b. Suppose that your corporation is only willing to take projects that have payback periods of no more than 3 years. Compute payback periods for the two projects. Which of the two projects, if any, should be accepted according to this rule? (3 points)
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