Consider Project X and another Project, Project Y, with net cash flows as follows:
—- Net Cash Flows —-
Project X Project Y
Initial Cost at T-0 (Now) ($10,000) ($20,000)
cash inflow at the end of year 1 6,000 4,000
cash inflow at the end of year 2 4,000 8,000
cash inflow at the end of year 3 2,000 12,000
a. Construct NPV Profiles for these two projects, assuming your firm’s required rate of return is 10%.
b. If the two projects were mutually exclusive, which would you accept if your firm’s cost of capital were 4%? Which would you accept if your firm’s cost of capital were 10%?
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