Question: Here are the cash flow forecasts for two mutually exclusive projects: Project K and Project L: year 0 are -$233,000 and -$24,000, year 1 are

Here are the cash flow forecasts for two mutually exclusive projects: Project K and Project L: year 0 are -$233,000 and -$24,000, year 1 are 45,975 and 3,900, year 2 are 30,750 and 15,000, year 3 are 18,900 and 12,890, year 4 are 262,890 and 18,270.

The discount rate is 8.5%.(Note: Apart from question b, show your work the steps in your calculations - in detail).

a. Based on the NPV criterion, which project will you choose? Why?

b. Based on the IRR criterion, which project will you choose? Why? (Use Excel or financial calculator to find the IRR).

c. The acceptable Payback Period for this company is 3 years. Based on the Payback Period criterion, which project will you choose? Why?

d. The acceptable pre-set Discounted Payback Period for this company is 3.5 years.Based on the Discounted Payback Period criterion, which project will you choose? Why?

e. Based on the Profitability Index criterion, which project will you choose? Why?f. Using all the data from answers a to e, which project will you choose? Why?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Hello, like you can you see it. I just got an answer from some friends in the 2 last pictures but I really don't like the way they did. So please do it differently and will give you a like+comments...

QUESTION 1 If the net present value (NPV) of a project is positive: A.The project's discounted payback period is longer than the useful life of the project. B.The internal rate of return is lower...

A) Ace Industries is evaluating two mutually exclusive projects. Project A has an initial cost of $1,500 and is expected to increase company cash flows by $900 in year 1, $300 in year 2, $700 in year...

need help, please help with each question . Explain each step by step and answer. I will rate and leave great comments. As the director of capital budgeting for Denver Corporation, you are evaluating...

CellG, is considering two mutually exclusive projects. Project 1 requires an investment of R40,000, while Project 2 requires an investment of R30,000. Cash revenues and cash costs for each project...

As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects. Project X is a three year project and project Z is a four year project. The project...

Problem 1:Johnson Jets is considering two mutually exclusive projects. Project A has an up-front cost of $124,000 (CF 0 = -124,000), and produces positive after-tax cash inflows of $30,000 a year at...

1. You are considering buying a machine which costs $1 200, has a 5-year life and would be depreciated straightline to a salvage value of $200. The machine would start generating revenues one year...

Maxim Inc. is considering two mutually exclusive projects. Project 1 requires an investment of R40 000, while Project 2 requires an investment of R30 000. Cash revenues and cash costs for each...

The price for the standard Ride King is $650. Manufacturer gross profit margin on this unit is approximately 15 percent. The cost of goods sold for this product is approximately $100 for labor and...

Suppose you retire at age 70. You expect to live 20 more years and to spend $55,000 a year during your retirement. How much money do you need to save by age 70 to support this consumption plan?...

Why are safety and risk two sides of the same coin?

Once someone has reached 3 0 years of service, there is no pension - linked reason to continue working if the unit benefit formula in place has a 3 0 - year service cap. Group of answer choices True...

Advanced: Decision tree, expected value and maximin criterion (a) The Alternative Sustenance Company is considering introducing a new franchised product, Wholefood Waffles. Existing ovens now used...

Advanced: Calculation of expected value of perfect and imperfect information Butterfield Ltd manufactures a single brand of dog- food called Lots O Grissle (LOG). Sales have stabilized for several...

Advanced: Expected net present value and decision whether to abandon a project after one yearA company is considering a project involving the outlay of 300 000 which it estimates will generate cash...