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    Capital Budgeting Techniques Using Net Present Value

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    Assume the following scenario:

    A company is considering two mutually exclusive projects (project A and B). The following shows the expected cash flows:

    Year Project A Project B
    0 - 30,000 -60,000
    1 10,000 20,000
    2 10,000 20,000
    3 10,000 20,000
    4 10,000 20,000
    5 10,000 20,000

    Cost of capital=14%

    Using one of the capital budgeting techniques (ie, NPV, IRR, Profitability Index, or Payback period), explain which is the preferred project.

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    Solution Summary

    This response determines the preferred project using capital budgeting techniques.