Principles of Managerial Finance, Student Value Edition Plus MyLab Finance with Pearson eText - Access Card Package (15th Edition) (Pearson Series in Finance)
15th Edition
ISBN: 9780134830209
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 10, Problem 10.1STP
All techniques with NPV profile: Mutually exclusive projects Fitch Industries is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects, M and N. The relevant cash flows for each project are shown in the following table The firm’s cost of capital is 9%.
| Project M | Project N | |
| Initial investment (CF0) | –$40,000 | –$40,000 |
| Year(t) | ||
| 1 | $14,000 | $23,000 |
| 2 | 14,000 | 12,000 |
| 3 | 14,000 | 10,000 |
| 4 | 14,000 | 9,000 |
- a. Calculate each project’s payback period.
- b. Calculate the
net present value (NPV) for each project. - c. Calculate the
internal rate of return (IRR) for each project. - d. Summarize the preferences dictated by each measure you calculated, and indicate which project you would recommend. Explain why.
- e. Draw the net present value profiles for these projects on the same set of axes, and explain the circumstances under which a conflict in ran kings might exist.
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Chapter 10 Solutions
Principles of Managerial Finance, Student Value Edition Plus MyLab Finance with Pearson eText - Access Card Package (15th Edition) (Pearson Series in Finance)
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