Question: LMN Inc needs to decide between two projects, X and Y. Both projects involve an initial investment of $25,000 and last for 6 years. The
LMN Inc needs to decide between two projects, X and Y. Both projects involve an initial investment of $25,000 and last for 6 years. The company’s discount rate is 10%. The expected cash flows are:
Year | Project X | Project Y |
1 | $8,000 | $9,000 |
2 | $7,000 | $6,000 |
3 | $6,000 | $5,000 |
4 | $6,000 | $7,000 |
5 | $5,000 | $8,000 |
6 | $5,000 | $7,000 |
Requirements:
- Calculate the NPV of both projects.
- Compute the IRR for both projects.
- Determine the Discounted Payback Period for both projects.
- Evaluate the Profitability Index for both projects.
- Make a recommendation on which project to undertake.
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