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Investment criteria

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(Investment criteria)
Nassau Manufacturing Company is considering two capital budgeting
projects with a cost of capital of 15% and the expected cash flows shown here. 15%

A) Calculate the Payback period, NPV and IRR for each project.
Which project(s) should Nassau accept, assuming they are:

B) Independent? Both Project A and Project B are accepted because both projects' NPV is higher than 0 and IRR is higher than 15%.

C) Dependent (both or neither are required)? Both Project A and Project B are accepted because both projects' NPV is higher than 0 and IRR is higher than 15%.

D) Mutually exclusive? We should select Project A because its NPV is greater than Project B. We should select the project which has higher NPV to add the most to shareholder wealth.

Year 0 1 2 3 4 5 Millions
Project A -100 25 30 40 35 30
Project B -50 20 15 20 10 15

Project A

Payback period is defined as the expected number of years required to recover the original ...

Solution Summary

This solution is comprised of a detailed explanation to calculate the Payback period, NPV and IRR for each project.

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