Question: A company is considering two mutually exclusive projects requiring an initial cash outlay of 10,000 each and with a useful life of 5 years. The
A company is considering two mutually exclusive projects requiring an initial cash outlay of 10,000 each and with a useful life of 5 years. The after depreciation and taxes cash flows expected to be generated by the projects are as follows:
| YEAR | 1 | 2 | 3 | 4 | 5 |
| Project A | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 |
| Project B | 4,000 | 2,500 | 2,000 | 4,000 | 3,500 |
Required:
Calculate for each project
- The payback period
- The average rate of return
- The net present value
- Which is a better project? Why?
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