Self-Test Problem

(Solutions in Appendix)

  1. Learning Goals 2, 3, 4, 5, 6

    ST10–1 All techniques with NPV profile: Mutually exclusive projects  Fitch Industries is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects, M and N. The relevant cash flows for each project are shown in the following table. The firm’s cost of capital is 9%.

    Project M Project N
    Initial investment (CF0)  −$40,000  −$40,000
    Year (t) Cash inflows (CFt)
    1    $14,000    $23,000
    2      14,000      12,000
    3      14,000      10,000
    4      14,000        9,000

    1. Calculate each project’s payback period.

    2. Calculate ...

Get Principles of Managerial Finance, 15th Edition now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.

Start your free trial