Question: Use the following information regarding two mutually exclusive projects to answer the following five questions: Option 1: This investment will cost you $35,000 today.

Use the following information regarding two mutually exclusive projects to answer the

Use the following information regarding two mutually exclusive projects to answer the following five questions: Option 1: This investment will cost you $35,000 today. You expect to receive $15,000 in Year 1, $28,000 in Year 2, and $3,500 in Year 3. Option 2: This investment will cost you $18,000. You expect to receive $14,000 in Year 1, - $2,500 in Year 2, and $7,500 in Year 3. The discount rate on both projects is 12.0%. 1. What are the payback periods for each project? If your cutoff is projects that pay back in 2 years, which project should you accept? 2. What is the IRR for each project? Which project should you accept? 3. What is the NPV for each project? Which project should you accept? 4. What is the IRR on the incremental cash flows? Which project should you accept? 5. What is the Profitability Index for each project? Which project should you accept?

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The payback period for Option 1 is Year 1 15000 Year 2 28000 Year 3 3500 Total Cash Inflows 46500 Pa... View full answer

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