All techniques - Decision among mutually exclusive investments
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Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the attached table.
a. Calculate the payback period for each project.
b. Calculate the net present value (NPV) of each project, assuming that the firm has a cost of capital equal to 13%.
c. Calculate the internal rate of return (IRR) for each project.
d. Draw the net present value profiles for both projects on the same set of axes, and discuss any conflicts in ranking that may exist between NPV and IRR.
e. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why.
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Solution Summary
Solution file contains detailed analysis of various techniques including payback period, NPV, IRR etc., to select from among mutually exclusive investments. It also contains NPV PROFILE for better understanding.
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- MPhil, Madurai Kamaraj University
- MCom, Annamalai University
- IATA, International Air Transport Association
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