Your firm is considering two mutually exclusive projects, P and Q, that would each require an initial cash outflow of $10,000

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Darshita 6.14K January 1, 2017 0 Comments

Your firm is considering two mutually exclusive projects, P and Q, that would each require an initial cash outflow of $10,000. They would generate the following incremental, after-tax, operating cash flows:

Project P Project Q

Year 1 $5,000 $3,000

Year 2 4,000 4,000

Year 3 3,000 6,000

If the firm’s required rate of return is 12%, which would you select

1 Answer

score 0 · Answer 1 · 2017-01-01T07:57:52+00:00

Project P CF PVIF_12%,3 PV Project Q CF PVIF_12%,3 PV

Year ) -$10,000 1.0000 -$10,000 -$10,000 1.0000 -$10,000

Year 1 $5,000 0.893 4,465 $3,000 0.893 2,679

Year 2 4,000 0.797 3,188 4,000 0.797 3,188

Year 3 3,000 0.712 2,136 6,000 0.712 4,272

Net Present Value -211 139

Select Project Q

1 Answer

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