Question: Evaluate the following projects using the net present value criteria. Suppose the cost of capital is 9%. Project M Project N First Cash Out -260.000$

Evaluate the following projects using the net present value criteria. Suppose the cost of capital is 9%.

Project M

Project N

First Cash Out

-260.000$

-260.000$

Year 1 Cash flow

19.000

185.000

Year 2 Cash flow

121.000

85.000

Year 3 Cash flow

185.000

55.000

A.

What are the NPVs for projects and what do these numbers tell you?

B.

If the projects are independent, which one would you accept according to the NPV criteria?

C.

If the projects are mutually exclusive, which would you accept based on the NPV criterion?

D.

Both projects have a total cash inflow of $325,000 and the same initial outflow. Why don't both projects have the same NPV?

e.

If the cost of capital rises to 12%, what effect will this have on your decision?

F.

Why does a change in cost of capital have an effect on NPV?

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