You have just started working and you've been assigned to lead a team that makes recommendations...

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You have just started working and you've been assigned to lead a team that makes recommendations to the CFO on capital expenditures for the coming year. Your capital expenditure budget is $100 million you estimate the cost of capital is 10% and that investments will produce the following after tax cash flows in millions of dollars Year 0 1 2 3 Project A -$30 $25 $15 $10 Project B -$26 $20 $9 $9 a) Calculate the NPV of each project b) Calculate the profitability index of each project. c) Based on your analysis if the two projects are independent, which project(s) should the firm undertake? d) Based on your analysis, if the two projects are mutually exclusive, what is your recommendation? You have just started working and you've been assigned to lead a team that makes recommendations to the CFO on capital expenditures for the coming year. Your capital expenditure budget is $100 million you estimate the cost of capital is 10% and that investments will produce the following after tax cash flows in millions of dollars Year 0 1 2 3 Project A -$30 $25 $15 $10 Project B -$26 $20 $9 $9 a) Calculate the NPV of each project b) Calculate the profitability index of each project. c) Based on your analysis if the two projects are independent, which project(s) should the firm undertake? d) Based on your analysis, if the two projects are mutually exclusive, what is your recommendation?

Answer rating: 100% (QA)

a NPV Calculation The NPV is calculated by discounting the cash flows to their present value and the... View the full answer