31. Assume two mutually exclusive projects have the estimated net incremental after-tax cash flows shown below. The company's required rate of return is 12%. For each project, compute a) the net present value, b) intenal rate of return, c) profitability index and d) the payback period. e) State which project should be chosen and why. Project Initial investment Annual after-tax cash flows Year 1 Year 2 Year 3 $100,000 $150,000 20,000 30,000 40,000 50,000 60,000 39,000 39,000 39,000 39,000 39,000 39,000 Year 4 Year 5 Year 6

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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31. Assume two mutually exclusive projects have the estimated net incremental
after-tax cash flows shown below. The company's required rate of return is
12%. For each project, compute a) the net present value, b) intenal rate of
return, c) profitability index and d) the payback period. e) State which project
should be chosen and why.
Project
Initial investment
Annual after-tax cash flows
Year 1
Year 2
Year 3
$100,000
$150,000
20,000
30,000
40,000
50,000
60,000
39,000
39,000
39,000
39,000
39,000
39,000
Year 4
Year 5
Year 6
Transcribed Image Text:31. Assume two mutually exclusive projects have the estimated net incremental after-tax cash flows shown below. The company's required rate of return is 12%. For each project, compute a) the net present value, b) intenal rate of return, c) profitability index and d) the payback period. e) State which project should be chosen and why. Project Initial investment Annual after-tax cash flows Year 1 Year 2 Year 3 $100,000 $150,000 20,000 30,000 40,000 50,000 60,000 39,000 39,000 39,000 39,000 39,000 39,000 Year 4 Year 5 Year 6
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