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2. Project P costs $35,800 and is expected to produce cash flows of $8,500 per year for six years. Project Q costs $90,000 anb. If the projects are independent, which project(s) should be selected? If they are mutually exclusive, which project should

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Answer #1

a:

Project P Project Q
NPV 3494.48 7080.47
IRR 11.15% 10.55%
MIRR 9.69% 9.37%
Payback 4.21 4.29

b: If they are independent, select Both since both have positive NPVs

If they are mutually exclusive select Q since it has higher NPV.

Workings

Year Project P Cumulative CF Project Q Cumulative CF
0 -35800 -35800 -90000 -90000
1 8500 -27300 21000 -69000
2 8500 -18800 21000 -48000
3 8500 -10300 21000 -27000
4 8500 -1800 21000 -6000
5 8500 6700 21000 15000
6 8500 15200 21000 36000

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