Question
Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is
Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars):
Year | Project A | Project B |
1 | 5 | 20 |
2 | 10 | 10 |
3 | 15 | 8 |
4 | 20 | 6 |
- What is the regular payback period for each of the projects?
- What is the discounted payback period for each of the projects?
- If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake?
- If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake?
- If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake?
- What is the crossover rate?
- If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
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Organic Chemistry A Short Course
Authors: Harold Hart, Christopher M. Hadad, Leslie E. Craine, David J. Hart
13th edition
978-1111425562
