Question
Your supervisor has asked you to examine 2 mutually exclusive projects and advise as to selection. Use the three DCF methods to arrive at a
Your supervisor has asked you to examine 2 mutually exclusive projects and advise as to selection. Use the three DCF methods to arrive at a decision regarding the following mutually exclusive projects. If there is a conflict between the results use the appropriate methodology (HINT: Fisher Intersection) to resolve this and decide which project we should undertake. Our cost of capital for both projects is 8%; our initial outlay for both projects is $500,000; Both projects will be completed in 5 years. Project A will return $150,000 at the end of each year for 5 years. Project B will return no cash flow for years one and two, and then it will generate $275,000 for the next three years.
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