Assignment 4 – Capital Budgeting
You are evaluating two mutually exclusive projects with the following net cash flows:
Project X Project Y
Year Cash Flow Cash Flow
0 -$1000 -$1100
1 100 1000
2 300 100
3 400 150
4 700 50
The cost of capital is 12 percent.
- What is each project’s payback period? If the cutoff period is 3 year, then which project would you choose?
- What is each project’s discounted payback period? If the cutoff period is 3 year, then which project would you choos
- What is each project’s NPV? Which project would you choose based on NPV rule?
- What is each project’s IRR? Which project would you choose based on IRR rule?
- What is each project’s profitability index? Based on profitability index, which project is preferred?
- What is each project’s equivalent annual annuity (EAA)? Based on EAA, which project is preferred?
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