Contemplating two initiatives

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Oscorp Industries is contemplating two initiatives. Initiative 1 has an initial investment of $320,000. The predicted cash inflows are $75,000 each year for five years. Initiative 2 has an initial investment of $330,000. The expected cash inflows are $40,000, $50,000, $60,000, 70,000, $80,000 and $90,000 during years 1, 2, 3, 4, 5 and 6, respectively.

a) The typical payback for such initiative is 4 years. Compute the payback periods for the initiatives. Which of the initiatives should you take if the initiatives are independent? Why? Which of the initiative will you take considering the two initiatives are mutually exclusive? Why?

b) Assume an discount rate of 10%. Compute the NPVs of the two intitiatives. Which initiative should be accepted considering the initiatives are independent? Which initiatives should you take considering the two initiatives.

Reference no: EM131576585

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