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As the director of capital budgeting for Denver Corporation, you are evaluating two projects with the following net cash flows:

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?

Top Answer

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

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