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Computing The NPV, IRR And Discounted Payback Period

? Two projects being considered are mutually exclusive and have the following projected cash flows:

Project A Project B

Year Cash Flow Cash Flow

0 -$50,000 -$50,000
1 15,625 0
2 15,625 0
3 15,625 0
4 15,625 0
5 15,625 99,500
If the required rate of return on these projects is 10 percent, which would be chosen and why?

? Davis Corporation is faced with two independent investment opportunities. The corporation has an investment policy that requires acceptable projects to recover all costs within 3 years. The corporation uses the discounted payback method to assess potential projects and utilizes a discount rate of 10 percent. The cash flows for the two projects are:

Project A Project B

Year Cash Flow Cash Flow

0 -$100,000 -$80,000
1 40,000 50,000
2 40,000 20,000
3 40,000 30,000
4 30,000 0

In which investment project(s) should the company invest?

Solution Summary

This solution illustrates how to compute the net present value, internal rate of return and discounted payback period of mutually exclusive projects.

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