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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
Payback period is defined as the expected number of years required to recover the original ...
This solution is comprised of a detailed explanation to calculate the Payback period, NPV and IRR for each project.
More than One Investment Criteria
Is it ever appropriate to use more than one investment criteria (payback period, average acct. return, internal rate of return, profitability index, net present value) to evaluate a project. Explain.View Full Posting Details