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  1. business
  2. accounting
  3. consider two mutually exclusive projects with the

Consider two mutually exclusive projects with the following cash flows:Project K:Initial Investment: -$2,000,000Year 1: $500,000Year...

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Accounting

Consider two mutually exclusive projects with the following cash flows:

  • Project K:
    • Initial Investment: -$2,000,000
    • Year 1: $500,000
    • Year 2: $700,000
    • Year 3: $900,000
    • Year 4: $1,200,000
  • Project L:
    • Initial Investment: -$3,000,000
    • Year 1: $600,000
    • Year 2: $800,000
    • Year 3: $1,000,000
    • Year 4: $1,500,000
Requirements:

a. Calculate the NPV of each project using a discount rate of 5%. b. Determine the IRR for each project. c. Analyze which project has a better profitability index. d. Discuss which project should be chosen and why.

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