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Exclusive projects requiring an initial cash outlay

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A company is considering two mutually exclusive projects requiring an initial cash outlay of £ 10,000 each and with a useful life of 5 years. The after depreciation and taxes cash flows expected to be generated by the projects are as follows:  

YEAR

1

2

3

4

5

Project A

£ 3,000

3,000

3,000

3,000

3,000

Project B

£ 4,000

2,500

2,000

4,000

3,500

Required:

Calculate for each project

  1. The payback period
  2. The average rate of return
  3. The net present value
  4. Which is a better project? Why?

Reference no: EM133116895

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