10-2

The Elephant Co. is considering two mutually exclusive projects: Project V and Project W.

Project V has an initial cash outlay of $3,200 and expected cash flows of $1,500 at the end of each year for 3 years.

Project W has an initial cash outlay of $1,600 and expected cash flows of $500 at the end of each year for 6 years.

The required rate of return for both projects is 13%.

a. Calculate the Payback Period of each project and interpret its meaning. Which project(s) should be accepted? Explain.

b. Calculate the Discounted Payback Period of each project and interpret its meaning. Which project(s) should be accepted? Explain.

c. Calculate the Profitability Index of each project and interpret its meaning. Which project(s) should be accepted? Explain.

d. Calculate the projects Net Present Value of each project and interpret its meaning. Which project(s) should be accepted? Explain.

e. Calculate the projects Internal Rate of Return of each project and interpret its meaning. Which project(s) should be accepted? Explain.

f. Based on your analysis above, which project(s) should be accepted? Explain.

g. Which project(s) should the project be accepted, if the two projects were independent? Explain.