Capital Budgeting Methods: Evaluating Mutually-Exclusive Projects
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Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects' NPV's, IRR's, MIRRs and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should be selected?
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Solution Summary
Using an Excel 97-2003, this solution illustrates how to compute the net present value, internal rate of return, modified internal rate of return, and profitability index, and how to use these measures to evaluate mutually-exclusive projects.
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