Project Alpha requires an outlay of $10,000 immediately. Project Alpha has a 1-year life and is expected to produce a net cash flow at the end of one year of $20,000. Project Beta, a mutually exclusive alternative to Alpha, requires an outlay of $20,000 immediately. It too is expected to have a 1-year life and to produce a net cash flow at the end of one year of $35,000. a. Compute the internal rate of return for both projects. Compute the NPV for both projects, using a cost of capital of 10 percent. b. Which project should be undertaken?
Project Alpha requires an outlay of $10,000 immediately. Project Alpha has a 1-year life and is expected to produce a net cash flow at the end of one year of $20,000. Project Beta, a mutually exclusive alternative to Alpha, requires an outlay of $20,000 immediately. It too is expected to have a 1-year life and to produce a net cash flow at the end of one year of $35,000. a. Compute the internal rate of return for both projects. Compute the NPV for both projects, using a cost of capital of 10 percent. b. Which project should be undertaken?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 21P
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21. Project Alpha requires an outlay of $10,000 immediately. Project Alpha has a 1-year
life and is expected to produce a net cash flow at the end of one year of $20,000.
Project Beta, a mutually exclusive alternative to Alpha, requires an outlay of
$20,000 immediately. It too is expected to have a 1-year life and to produce a net
cash flow at the end of one year of $35,000.
a. Compute the
both projects, using a cost of capital of 10 percent.
b. Which project should be undertaken?
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