question archive You are considering the following two mutually exclusive projects
You are considering the following two mutually exclusive projects
Subject:FinancePrice: Bought3
You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value.
Year
Project(A)
Project (B)
0
-$30,000
-$30,000
1
13,000
5,000
2
11,000
5,000
3
9,000
5,000
4
7,000
5,000
5
0
5,000
6
7
8
9
10
0
0
0
0
0
5,000
5,000
5,000
5,000
5,000
The required rate of return is 10%.
(1). (4 points) What is the NPV for each of the projects? Which project should be accepted if NPV method is applied? Explain why.
(2). (4 points) What is the IRR for each of the projects? Which project should be accepted if IRR method is applied? Explain why.
(3). (4 points) What is the payback period for each of the projects? Which project should be accepted if payback period method is applied? Assume that the target payback period is 4 years. Explain why.
(4). (4 points) What is the discounted payback period for each of the projects? Which project should be accepted if discounted payback period method is applied? Assume that the target discounted payback period is 4 years. Explain why.
Explain why.
