Your division is considering two projects. The required rate of return for both projects is 12%. Below are the cash flows of both the projects: (Note: show all computations) Projects Initial investment Year 1 Year 2 Year 3 Year 4 A -$50 $7 $12 $17 $25 B -$50 $20 $18 $12 $11 Calculate the Payback period and discounted payback period. Why are they different? Calculate the NPV for both the projects Which projects should be accepted on the basis of IRR?
Your division is considering two projects. The required rate of return for both projects is 12%. Below are the cash flows of both the projects: (Note: show all computations) Projects Initial investment Year 1 Year 2 Year 3 Year 4 A -$50 $7 $12 $17 $25 B -$50 $20 $18 $12 $11 Calculate the Payback period and discounted payback period. Why are they different? Calculate the NPV for both the projects Which projects should be accepted on the basis of IRR?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 7P: Your division is considering two investment projects, each of which requires an up-front expenditure...
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Your division is considering two projects. The required
Projects |
Initial investment |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
A |
-$50 |
$7 |
$12 |
$17 |
$25 |
B |
-$50 |
$20 |
$18 |
$12 |
$11 |
- Calculate the Payback period and discounted payback period. Why are they different?
- Calculate the NPV for both the projects
- Which projects should be accepted on the basis of
IRR ?
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