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
Section: Chapter Questions
Problem 1PS
Related questions
Question
Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows:
|
Year |
Project L |
Project M |
|
1 |
5,000,000 |
20,000,000 |
|
2 |
10,000,000 |
10,000,000 |
|
3 |
15,000,000 |
8,000,000 |
|
4 |
20,000,000 |
6,000,000 |
- What is the regular payback period for each of the projects?
- What is the discounted payback period for each of the projects?
- If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake?
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