Project A Project I Cash Flow Year 1 250,000 450,000 Year 2 250,000 450,000 Year 3 250,000 450,000 Year 4 250,000 450,000 Year 5 400,000 400,000 Year 6 400,000 400,000 Year 7 400,000 400,000 Year 8 400,000 400,000 4% 6% Cost of Capital

Project A Project I Cash Flow Year 1 250,000 450,000 Year 2 250,000 450,000 Year 3 250,000 450,000 Year 4 250,000 450,000 Year 5 400,000 400,000 Year 6 400,000 400,000 Year 7 400,000 400,000 Year 8 400,000 400,000 4% 6% Cost of Capital

Fundamentals of Financial Management (MindTap Course List)

15th Edition

ISBN:9781337395250

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter11: The Basics Of Capital Budgeting

Section: Chapter Questions

Problem 11P: CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS Project S costs 17,000, and its expected...

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Question

What is the npv, payback period, and the internal rate of return for project I.

Project A
Project I
Cash Flow
Year 1
250,000
450,000
Year 2
250,000
450,000
Year 3
250,000
450,000
Year 4
250,000
450,000
Year 5
400,000
400,000
Year 6
400,000
400,000
Year 7
400,000
400,000
Year 8
400,000
400,000
4%
6%
Cost of Capital

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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