ABC Inc. is considering the following two mutually exclusive investment projects: Project A -$150,000 $60,000 $60,000...

 

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ABC Inc. is considering the following two mutually exclusive investment projects: Project A -$150,000 $60,000 $60,000 $60,000 $80,275 Year 0 1 2 3 4 Project B -$80,000 $28,000 $42,000 $40,000 $44,000 Both projects carry similar risks. The expected annual return on similar projects in the market is 8%. [Note that for parts (a) to (c), full mark would only be given if correct numerical formula is provided.] (a) If ABC has set a 3-year target/cutoff payback period for the firm's investment projects, analyze which project will be chosen. (3 marks) (b) Using the NPV decision rule, analyze which project will be chosen. (7 marks) (c) Using the IRR decision rule, analyze which project will be chosen. (Round your final answers to the nearest integer). (5 marks) (d) Based on your answers in parts (a) to (c), determine which project ABC should choose. Explain your rationale. (3 marks) ABC Inc. is considering the following two mutually exclusive investment projects: Project A -$150,000 $60,000 $60,000 $60,000 $80,275 Year 0 1 2 3 4 Project B -$80,000 $28,000 $42,000 $40,000 $44,000 Both projects carry similar risks. The expected annual return on similar projects in the market is 8%. [Note that for parts (a) to (c), full mark would only be given if correct numerical formula is provided.] (a) If ABC has set a 3-year target/cutoff payback period for the firm's investment projects, analyze which project will be chosen. (3 marks) (b) Using the NPV decision rule, analyze which project will be chosen. (7 marks) (c) Using the IRR decision rule, analyze which project will be chosen. (Round your final answers to the nearest integer). (5 marks) (d) Based on your answers in parts (a) to (c), determine which project ABC should choose. Explain your rationale. (3 marks)

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a To analyze which project will be chosen based on the 3year targetcutoff payback period we need to calculate the cumulative cash flows for each proje... View the full answer