Question: A company is evaluating two mutually exclusive projects with the following projected after-tax cash flows: Project A Project B Year 0 -$40,000 -$80,000 Year 1

A company is evaluating two mutually exclusive projects with the following projected after-tax cash flows:

Project A Project B

Year 0 -$40,000 -$80,000

Year 1 $19,000 0

Year 2 $12,000 0

Year 3 $18,000 0

Year 4 $10,500 $139,921

  1. If the companys required return on investment is 10%, what is the NPV of each project?
  1. Based on the NPV method, which project should the company invest in and why?
  1. What is the IRR of each project?
  1. Based on the IRR investment criteria, which project should the company invest in and why?
  1. If the companys required return on investment is 10%, what is the discounted payback period for each project?
  1. Based on the discounted payback method, which project should the company invest in and why?
  1. Ultimately which of the two mutually exclusive projects should the company invest in and why?
  1. Assume again that the projects are mutually exclusive. At what required return you would be indifferent between the two projects?

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