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1) It is time to make a decision how to utilize money your firm is expected to make this year. Two investment opportunities are available, with net and suitable cash flows as follows:

Year  Project X   Project Y
0    ($30,000)   ($30,000)
1    11,000         4,000
2    10,000         8,000
3     9,000         12,000
4     8,000         16,000

a) Compute Net Present Value (NPV) of each project, supposing your firm's weighted average cost of capital (WACC) is 6%

b) Compute each project’s Internal rate of Return (IRR).

c) Design NPV profiles for both projects on a graph.

d) Supposing that your firm's WACC is 6%:

(1) If projects are independent which one(s) must be accepted?

(2) If projects are mutually exclusive which one(s) must be accepted?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914315

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