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Your firm has the opportunity to expand into one of two new markets, and you have been asked to conduct a financial analysis. The firm
Your firm has the opportunity to expand into one of two new markets, and you have been asked to conduct a financial analysis. The firm can enter only one of these markets now, so the projects are mutually exclusive. The initial outlays are $240,000 for Project A and $225,000 for Project B. The forecast cash flows are shown below.
year 0 | year1 | year 2 | year 3 | year 4 | |
PROJECT A | -240,000 | 20000 | 50,000 | 100,000 | 150,000 |
PROJECT B | -225,000 | 145,000 | 60,000 | 40,000 | 30,000 |
- Work independently and use your skills to produce the IRR of each project.
- What is the NPV of each project at discount rates of 0%, 6%, 12%, and 18%?
- Apply the best communication skill to construct the crossover rate (incremental IRR).
- Produce an NPV profile chart to illustrate how the choice between the two projects depends on the discount rate.
Work independently and Clearly explain the conclusions to be drawn from the NPV profile.
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