Frazier Fudge, Inc. is considering 2 mutually exclusive projects with the following cash flows. Which project should be accepted? Assume a cost of capital of 10%.

 

Years                 Project X                     Project Y 

0                              ($350)                     ($350) 

1                             $130                        $200 

2                             $150                        $120 

3                             $180                          $120 

 

  a. Project X because NPV is $27.4

  b.  Project Y because NPV is $31

  c.  Project X because IRR is 13.7%

  d.  Project Y because IRR is 12.2%

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The following projects are all characterized by a single initial cash outflow (the initial investment) followed by a series of cash inflows. Rank them based on profitability index. Project A Project B Project C Project D a. A, C, B, D b. C, D, A, B c. D, A, C, B d. B, D, C, A Investment $160,000 $120,000 $110,000 $200,000 NPV $30,000 $15,000 $25,000 $40,000