Question: You are evaluating two potential projects that have the following cash flows: Time Project A Project B 0 -$25,000 -$50,000 1 $6,000 $16,500 2 $6,000
You are evaluating two potential projects that have the following cash flows:
| Time | Project A | Project B |
| 0 | -$25,000 | -$50,000 |
| 1 | $6,000 | $16,500 |
| 2 | $6,000 | $15,000 |
| 3 | $7,000 | $13,000 |
| 4 | $8,000 | $11,000 |
| 5 | $9,000 | $9,000 |
- For each project determine:
- Payback Period
- Discounted payback period assuming a required return of 9%
- NPV
- IRR
- Profitability index
- If the two projects are mutually exclusive and you require a return of 9%, which project would you select? Why?
- At what rate are you indifferent between the two projects? (What is the crossover rate?)
- Create a single chart showing NPV profiles of both projects for required return rates up to 20%. (NPV on the y-axis with required return on the x-axis)
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