Question: A company is considering two projects: Project X and Project Y. Use the following information to answer the questions. Year 0 1 2 3 4
A company is considering two projects: Project X and Project Y. Use the following information to answer the questions.
| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| Project X | -10,000 | 4,000 | 4,000 | 3,000 | 3,000 | 3,000 |
| Project Y | -10,000 | 3,000 | 3,000 | 2,000 | 2,000 | 5,000 |
Assume that projects have a 10 percent cost of capital (WACC).
- Calculate payback period for both projects. Show calculation and interpret the results.
(5 points)
Payback period is the time in which annual cash flows of the project just offsets the initial investment.
- Calculate net present value (NPV) for both projects. Interpret. (5 points)
- Calculate internal rate of return (IRR) for both projects. Interpret. (5 points)
Which project(s) should be accepted if they are independent? if they are mutually exclusive? (5 points)
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