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Project P costs $10,400 and is expected to produce cash flows of $3,650 per year for...

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Finance

Project P costs $10,400 and is expected to produce cash flows of$3,650 per year for five years.

Project Q costs $30,000 and is expected to produce cash flows of$9,250 per year for five years.

a. Calculate the NPV, IRR, MIRR, and traditional payback periodfor each project, assuming a required rate of return of 8percent.

b. If the projects are independent, which project(s) should beselected? If they are mutually exclusive, which project should beselected?

Answer & Explanation Solved by verified expert
4.0 Ratings (558 Votes)
Project P NPV NPV Present value of cash inflows present value of cash outflows NPV Annuity 1 1 1 rn r Initial investment NPV 3650 1 1 1 0085 008 10400 NPV 3650 1 068058 008 10400 NPV 3650 399271 10400 NPV 471339 IRR IRR is the rate of return that makes NPV equal to 0 NPV 3650 1 1 1 R5 R 10400 Using trial and error method ie after trying various    See Answer
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Transcribed Image Text

Project P costs $10,400 and is expected to produce cash flows of$3,650 per year for five years.Project Q costs $30,000 and is expected to produce cash flows of$9,250 per year for five years.a. Calculate the NPV, IRR, MIRR, and traditional payback periodfor each project, assuming a required rate of return of 8percent.b. If the projects are independent, which project(s) should beselected? If they are mutually exclusive, which project should beselected?

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