Question: Question: A U.K. company is deciding between two mutually exclusive projects with the following costs and expected net cash flows: Year Project 1 Project 2

Question:

A U.K. company is deciding between two mutually exclusive projects with the following costs and expected net cash flows:

Year Project 1 Project 2

0 8,000,000 8,000,000

1 5,340,000 5,740,000

2 3,835,000 3,835,000

3 5,590,000 1,595,000

The company uses a discount rate of 13% for all projects and accepts all projects with a payback period of less than 5 years.

Which project is acceptable based on NPV (expressed in ) and based on payback period? Which choice is aligned to the goal of maximising shareholders' wealth?

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