Question: Consider two mutually exclusive projects. Both require an initial investment of $15 million and both last five years. Project A generates $4 million the first
Consider two mutually exclusive projects. Both require an initial investment of $15 million and both last five years. Project A generates $4 million the first year, with this amount increasing by $1 million annually over its 5-year life; Project B generates $13 million the first year, followed by 4 years of $2 million per year. The firm uses a 10% discount rate. Calculate the payback period, IRR, and NPV for each of the two projects. Which project, if any, will you choose to invest in? Comment on the advisability of project selection based on the three investment criteria.
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