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Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below: Time X 0 -$2,000-$2,000 1 2
Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below: Time X 0 -$2,000-$2,000 1 2 3 4 Y 200 2,000 600 200 800 100 1,400 75 1. What is the payback period for Project A and B? Which would be chosen and why? 2. If the cost of capital is 10%, what is the discounted payback period for Project A and B? Which would be chosen and why? 3. If the required rate of return on these projects is 10 percent, what are the NPV for Project A and B? Which would be chosen and why? 4. Calculate the profitability index for each project. 5. What is the IRR of both projects?
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