Fitch Industries
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Free InquiryFitch 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 14%.
Project M |
Project N |
|
Initial Investment (CF) |
$28,000 |
$27,000 |
Year (t) |
Cash inflows (CFt) |
|
1 |
$10,000 |
$11,000 |
2 |
$10,000 |
$10,000 |
3 |
$10,000 |
$9,000 |
4 |
$10,000 |
$8,000 |
a. Calculate each projects payback period
b. Calculate the net present value (NPV) for each project
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