Elm City Electronics is considering two mutually exclusive projects that differ greatly on the required investment and

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Elm City Electronics is considering two mutually exclusive projects that differ greatly on the required investment and projected cash flow s. The initial investment required for project II is $250,000 while for project II it is $25,000. Projected after-tax cash flows are shown below:
Cash Flows, $ Year Project I Project II 12,000 15,000 18,000 8,000 6,000 18,000 30,000 6,000 250,000 500 4,

The opportunity cost of capital for Elm City is 6%.
a. Decide w hic h project you would choose by apply in g each of the following decision criteria separately. Explain your reasoning in each case: (1) payback period, (2) discounted payback period, (3) NPV, (4) IRR, and (5) profitability index.
b. Which project would you eventually choose? Explain your answer.

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Related Book For  answer-question

Fundamentals of Corporate Finance

ISBN: 978-1259024962

6th Canadian edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim

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