1) It is time to make a decision how to utilize money your firm is expected to make this year. Two investment opportunities are available, with net and suitable cash flows as follows:
Year Project X Project Y
0 ($30,000) ($30,000)
1 11,000 4,000
2 10,000 8,000
3 9,000 12,000
4 8,000 16,000
a) Compute Net Present Value (NPV) of each project, supposing your firm's weighted average cost of capital (WACC) is 6%
b) Compute each project’s Internal rate of Return (IRR).
c) Design NPV profiles for both projects on a graph.
d) Supposing that your firm's WACC is 6%:
(1) If projects are independent which one(s) must be accepted?
(2) If projects are mutually exclusive which one(s) must be accepted?