• Nicholson Roofing Materials Inc. is considering two mutually exclusive projects that both cost $150,000. The company's board of directors has set a maximum four-year payback requirement. The cost of capital is 9%. The project cash flows appe below. • Here are the results of different capital budgeting techniques: • For each capital budgeting technique, identify which project is better? Make and justify a recommendation based on each technique. • After completing your assessment based on the individual techniques, which project would you recommend overall and why? Year Project A 1 $45,000 2 $45,000 3 $45,000 4 $45,000 5 $45,000 6 $45,000 Class Inflows (CF₁) IRR MIRR Project B $75,000 $60,000 $30,000 $30,000 $30,000 $30,000 Payback Period 3.33 Discounted Payback Period 4.14 NPV Profitability Index Project A Project B 2.50 3.35 $51,866.34 $51,112.36 1.34 19.90% 14.53% 1.34 22.70% 14.42%

• Nicholson Roofing Materials Inc. is considering two mutually exclusive projects that both cost $150,000. The company's board of directors has set a maximum four-year payback requirement. The cost of capital is 9%. The project cash flows appe below. • Here are the results of different capital budgeting techniques: • For each capital budgeting technique, identify which project is better? Make and justify a recommendation based on each technique. • After completing your assessment based on the individual techniques, which project would you recommend overall and why? Year Project A 1 $45,000 2 $45,000 3 $45,000 4 $45,000 5 $45,000 6 $45,000 Class Inflows (CF₁) IRR MIRR Project B $75,000 $60,000 $30,000 $30,000 $30,000 $30,000 Payback Period 3.33 Discounted Payback Period 4.14 NPV Profitability Index Project A Project B 2.50 3.35 $51,866.34 $51,112.36 1.34 19.90% 14.53% 1.34 22.70% 14.42%

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 4P

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