XYZ Company has two good businesses. Each has an initial investment of $ 25,000 with each...

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Finance

XYZ Company has two good businesses. Each has an initialinvestment of $ 25,000 with each cash flow as follows:
Year Business 1 Cash Flow Business 2 Cash Flow
1 7,500 7,500
2 7,000 7,500
3 6,000 7,500
4 5,000 7,500
5 3,500 7,500
If the cost of capital is 12.5%, calculate:
A. Payback Period and NPV
B. In your opinion, which business is better chosen?Business 1 and Business 2? And Why?

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4.3 Ratings (719 Votes)

ABusiness 1 Payback period full years until recovery unrecovered cost at the start of the yearcash flow during the year 3 years 25000 20500 5000 3 years 4500 5000 3 years 090 390 years Net present value is solved here using a financial calculator The steps to solve on the financial calculator See Answer

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Year	Business 1 Cash Flow	Business 2 Cash Flow
1	7,500	7,500
2	7,000	7,500
3	6,000	7,500
4	5,000	7,500
5	3,500	7,500