You have been given the task of anal yzing two proposed capital bud geting projects, Project A and Project B. Each project has a cost of $40,000, and the cost of capital for each project is 12%. Their expected net cash flows are: Expected Net Cash Flows Project A (S) (40,000) 7,500 13,000 15,000 20,000 Project B (S) (40,000) 14,000 14,000 14,000 14,000 Year 1 2 3 4 (a) Calculate each project’s payback period, (b) Calculate each project’s net present value (NPV) (c) Calculate each project’s internal rate of return (IRR). (d) Which project(s) should be accepted if they are independent?
You have been given the task of anal yzing two proposed capital bud geting projects, Project A and Project B. Each project has a cost of $40,000, and the cost of capital for each project is 12%. Their expected net cash flows are: Expected Net Cash Flows Project A (S) (40,000) 7,500 13,000 15,000 20,000 Project B (S) (40,000) 14,000 14,000 14,000 14,000 Year 1 2 3 4 (a) Calculate each project’s payback period, (b) Calculate each project’s net present value (NPV) (c) Calculate each project’s internal rate of return (IRR). (d) Which project(s) should be accepted if they are independent?
Chapter9: Capital Budgeting Techniques
Section: Chapter Questions
Problem 7PROB
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