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Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown here: The projects are not equally risky,
Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown here: | |||||
The projects are not equally risky, and their cost of capital is 12% and 14%% respectively. | |||||
Year | Project X CF | Project Y CF | |||
0 | -5000 | -5000 | |||
1 | 1000 | 4500 | |||
2 | 1500 | 1500 | |||
3 | 2000 | 1000 | |||
4 | 4000 | 500 | |||
5 | 500 | ||||
Cost of capital | 12% | 14% | |||
a. Which project has the higher NPV? | |||||
b. Which project has the shortest discounted payback? | |||||
c. Which project has the higher MIRR? Which project should be chosen based on the indicators you've calculated?
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