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    Capital Budgeting Decisions Utilizing Various Capital Budgeting Models

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    Make capital budgeting decisions utilizing various capital budgeting models.

    1. Payback method
    2. Net Present Value method
    3. Internal Rate of Return method

    Muscatel, Inc. is evaluating whether to build a bridge that will take two years to construct, or use a ferry to transport ore across a river. The cost of each alternative is a follows:

    Bridge Ferry
    Investment year 0 $4,000,000 $1,000,000
    Annual revenue
    Year 1 0 $750,000
    Year 2 0 $750,000
    Years 3-10 $1,500,000 $750,000
    Annual operating cost $250,000 $100,000
    Cost of capital 10% 10%

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    Solution Summary

    Using the payback method, net present value method, and internal rate of return method, this solution is computed in Excel and makes capital budgeting decisions based on the data.