You are considering the following two mutually exclusive projects. The required return on each project is...

 

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You are considering the following two mutually exclusive projects. The required return on each project is 14 percent. Year Cash Flow (A) Cash Flow (B) -$54.000 -$23,000 12.700 11.600 23,200 11.200 27.600 12.500 46,500 6,000 120 2 3 (1) Calculate the Payback period of both projects. (2 marks) (ii) State two advantages and two disadvantages of Payback period rule? (2 marks) (iii) Calculate the IRR of both projects. (2 marks) (iv) Under what circumstances IRR may generate wrong decision? (3 marks) (v) Calculate the NPV of both projects (2 marks) (vi) Which project should you accept and what is the best reason for that decision? (2 marks) You are considering the following two mutually exclusive projects. The required return on each project is 14 percent. Year Cash Flow (A) Cash Flow (B) -$54.000 -$23,000 12.700 11.600 23,200 11.200 27.600 12.500 46,500 6,000 120 2 3 (1) Calculate the Payback period of both projects. (2 marks) (ii) State two advantages and two disadvantages of Payback period rule? (2 marks) (iii) Calculate the IRR of both projects. (2 marks) (iv) Under what circumstances IRR may generate wrong decision? (3 marks) (v) Calculate the NPV of both projects (2 marks) (vi) Which project should you accept and what is the best reason for that decision? (2 marks)

Answer rating: 100% (QA)

Project Comparison I Payback Period Project A Cumulative cash flow 0 Year 1 12700 Year 2 12700 23200 ... View the full answer