You are a financial analyst for the H Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project X Project Y($100,000) ($100,000)60,500 40,00030,000 40,00030,000 40,00010,000 40,000 Required: Calculate each project’s payback period, net present value (NPV) and Profitability Index (PI)Which project or projects should be accepted if they are independent?Which project should be accepted if they are mutually exclusive?

Given information: Two projects with a cash flow stream over 4 years of life at a discount rate of…

Answered: You are a financial analyst for the H…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 8PROB

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Expected Net Cash Flows Year Project X Project Y

($100,000) ($100,000)
60,500 40,000
30,000 40,000
30,000 40,000
10,000 40,000

Required:

Calculate each project’s payback period, net present value (NPV) and Profitability Index (PI)
Which project or projects should be accepted if they are independent?

Which project should be accepted if they are mutually exclusive?

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