Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the discount rate for both projects is 8 percent. Year 0 1 2 3 Dry Prepreg -$1,800,000 1,080,000 840,000 870,000 a. Based on the payback period, which project should be taken? b. Based on the NPV, which project should be taken? c. Based on the IRR, which project should be taken? Solvent Prepreg -$715,000 380,000 627,000 396,000

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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18. Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company.
Assume the discount rate for both projects is 8 percent.
Year
0
1
2
3
Dry Prepreg
-$1,800,000
1,080,000
840,000
870,000
Solvent Prepreg
-$715,000
380,000
627,000
396,000
a. Based on the payback period, which project should be taken?
b. Based on the NPV, which project should be taken?
c. Based on the IRR, which project should be taken?
d. Based on this analysis, is incremental IRR analysis necessary? If yes, please conduct the analysis.
Transcribed Image Text:18. Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the discount rate for both projects is 8 percent. Year 0 1 2 3 Dry Prepreg -$1,800,000 1,080,000 840,000 870,000 Solvent Prepreg -$715,000 380,000 627,000 396,000 a. Based on the payback period, which project should be taken? b. Based on the NPV, which project should be taken? c. Based on the IRR, which project should be taken? d. Based on this analysis, is incremental IRR analysis necessary? If yes, please conduct the analysis.
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