Navin's Sailing Shop has two independent projects under consideration. The cash flows are given below. Navin's cost
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Question:
Navin's Sailing Shop has two independent projects under consideration. The cash flows are given below. Navin's cost of capital is 14%, and they use a 4-year payback standard period. The initial investment occurs in year zero and has a negative sign to represent the outflow:
Year | Project A | Project B |
0 | -$26,000 | -$70,000 |
1 | $8,000 | $20,000 |
2 | $8,000 | $20,000 |
3 | $8,000 | $20,000 |
4 | $8,000 | $20,000 |
5 | $8,000 | $20,000 |
1) Calculate the payback and discounted payback for each project.
2) Calculate the NPV and IRR of each project.
3) Based on the Capital Budgeting Criteria, which project should Navin accept? Comment on the findings.
Related Book For
Accounting Business Reporting For Decision Making
ISBN: 9780730302414
4th Edition
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver
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