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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.

    $2.19

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