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# Choosing from two mutually exclusive projects

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As the capital budgeting director for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows:

Project X Project Z
Year Cash Flow Cash Flow
0 -\$100,000 -\$100,000
1 50,000 10,000
2 40,000 30,000
3 30,000 40,000
4 10,000 60,000

If Denver's WACC is 15%, which project would you choose?
A Neither project.
B Project X, since it has the higher IRR.
C Project Z, since it has the higher NPV.
D Project X, since it has the higher NPV.
E Project Z, since it has the higher IRR

#### Solution Preview

Please refer attached file for better understanding of formulas.

Solution:
PV of a cash flow=FV/(1+r)^n
FV= Future cash flow
r=interest rate
n= period

Project X
Year End Cash flows PV ...

#### Solution Summary

Solution describes the steps for choosing a project from given two mutually exclusive projects by NPV method.

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