A company is considering two mutually exclusive projects, Project A and Project B. The initial outlay for
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Question:
A company is considering two mutually exclusive projects, Project A and Project B. The initial outlay for each project is $200,000, and the cost of capital for the company is 10%. The cash flows for each project are as follows:
Project A:
Year 1: $50,000
Year 2: $75,000
Year 3: $100,000
Year 4: $125,000
Project B:
Year 1: $70,000
Year 2: $60,000
Year 3: $50,000
Year 4: $40,000
Which project should the company choose? Calculate the net present value (NPV) and profitability index (PI) for each project to support your recommendation.
Related Book For
Financial Management Theory and Practice
ISBN: 978-1305632295
15th edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt
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