Project A: This project is the introduction of a new product. It will require an upfront...

  

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Project A: This project is the introduction of a new product. It will require an upfront investment of 10 million dollars. At the end of year 1, the project will generate 2.5 million dollars in FCFs. At the end of year 2, the project will generate 2.6 million dollars in FCFs. At the end of year 3, the project will generate 2.7 million dollars in FCFs. At the end of year 4, the project will generate 2.8 million dollars in FCFs. At the end of year 5, the project will generate 3.0 million dollars in FCFs. The project will generate no more FCFS after year 5. Project B: This is an expansion of the company's main office. This project will require an upfront investment of 4.5 million dollars. In year 1, the expansion will generate 0.5 million dollars in. After the first year, FCFs will grow by 2% each year forever. 34. Calculate the IRR of each project. A B cashflow Year Year 1 Year 1 Year 2 Year 3 Year 4 Year 5 -10000000.00 2500000.00 2600000.00 2700000.00 2800000.00 3000000.00 Calculate the Payback Period of each project. Suppose the two projects are independent. Which (if any) should the company accept? Why? Suppose instead the two projects are mutually exclusive, and the company can only accept one project. Which project should the company accept why? Project A: This project is the introduction of a new product. It will require an upfront investment of 10 million dollars. At the end of year 1, the project will generate 2.5 million dollars in FCFs. At the end of year 2, the project will generate 2.6 million dollars in FCFs. At the end of year 3, the project will generate 2.7 million dollars in FCFs. At the end of year 4, the project will generate 2.8 million dollars in FCFs. At the end of year 5, the project will generate 3.0 million dollars in FCFs. The project will generate no more FCFS after year 5. Project B: This is an expansion of the company's main office. This project will require an upfront investment of 4.5 million dollars. In year 1, the expansion will generate 0.5 million dollars in. After the first year, FCFs will grow by 2% each year forever. 34. Calculate the IRR of each project. A B cashflow Year Year 1 Year 1 Year 2 Year 3 Year 4 Year 5 -10000000.00 2500000.00 2600000.00 2700000.00 2800000.00 3000000.00 Calculate the Payback Period of each project. Suppose the two projects are independent. Which (if any) should the company accept? Why? Suppose instead the two projects are mutually exclusive, and the company can only accept one project. Which project should the company accept why?

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Calculating IRR and Payback Period for Projects A and B Project A IRR Using the IRR function in Excel or a financial calculator the IRR for Project A ... View the full answer