It's time to decide how to use the money your firm is expected to make this year. Two investment opportunities are available, with net cash flows as follows:
Year Project X Project Y
0 (Now) ($20,000) ($20,000)
1 8,500 4,200
2 7,000 5,700
3 5,500 7,200
4 4,000 8,700
a. Calculate each project's Net Present Value (NPV), assuming your firm's weighted average cost of capital (WACC) is 7%
b. Calculate each project's Internal rate of Return (IRR).
c. Plot NPV profiles for both projects on a graph).
d. Assuming that your firm's WACC is 7%:
(1) If the projects are independent which one(s) should be accepted?
(2) If the projects are mutually exclusive which one(s) should be accepted?