Question: JKL Industries is evaluating two mutually exclusive projects with the following cash flows: Year Project 1 (USD) Project 2 (USD) 0 (150,000) (150,000) 1 40,000
JKL Industries is evaluating two mutually exclusive projects with the following cash flows:
Year | Project 1 (USD) | Project 2 (USD) |
0 | (150,000) | (150,000) |
1 | 40,000 | 50,000 |
2 | 50,000 | 50,000 |
3 | 60,000 | 40,000 |
4 | 70,000 | 30,000 |
5 | 80,000 | 20,000 |
Requirements:
- Calculate the payback period for both projects.
- Determine the NPV if the cost of capital is 9%.
- Calculate the IRR for both projects.
- Assess the profitability index (PI).
- Advise which project should be undertaken and why.
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