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10-21 new division is considering two investment p...

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10-21 new division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate the cost of capital is 10% that the investments will produce following after-tax cash flows(in millions of dollars): Year Project A Project B 0 (25) (25) 1 5 20 2 10 10 3 15 8 4 20 6 a. What is the payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should firm undertake? e. If the two projects are mutually exclusive and cost capital is 15%, which project should the firm undertake? f. What is the crossover rate?

 

Paper#4164 | Written in 18-Jul-2015

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