13. You are a financial analyst for the Little Company. The director of capital

Question

13. You are a financial analyst for the Little Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows:

a. Calculate each project’s net present value (NPV), internal rate of return (IRR), profitability index (PI).

b. Which project or projects should be accepted if they are independent? Explain.

c. Which project should be accepted if they are mutually exclusive?

***Please show your work.

xpcted net cash flow year project x project y 0 ($12,000) ($12,000) 1 6,800 3,700 2 3,500 3,700 3 3,500 3,700 4 1,800 3,700 5 1,500 3,700

Explanation / Answer

Calculation of NPV,IRR & Profitability Index

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