As the director of capital budgeting for Denver Corporation, you are evaluating

Question

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

                        Year                Project X         Project Z

                        0                    -$100,000        -$100,000

                        1                         50,000             10,000

                        2                         40,000             30,000

                        3                         30,000             40,000

                        4                        10,000             60,000

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            We only have $100,000 to invest. What is your recommendation? Explain your recommendation.

Explanation / Answer

MEC(x)=14.5 %

MEC(z)=12%

since rate of interest is more in project X

so company should choose project Z

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