1. As the director of capital budgeting for Denver Corporation, you are evaluating two projects with the following net cash flows:
Project X Project Z
Year Cash Flow Cash Flow
0 -$100,000 -$100,000
1 70,000 10,000
2 50,000 30,000
3 10,000 40,000
4 5,000 90,000
Denver's cost of capital is 15 percent.
a. Compute the Payback, NPV and IRR for both projects.
b. If the projects are independent, which project(s) would you accept? Why?
b. If the projects are mutually exclusive, which project(s) would you accept? Why?
NPV is the present value of future cash flows minus the initial investment. It requires and assumed discount rate. IRR is the... View the full answer