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 ...

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