Project A Project Z ICO $360000 $525000 Year 1 $195000 $65000 Year 2 $15

Project A Project Z

ICO $360000 $525000

Year 1 $195000 $65000

Year 2 $155000 $120000

Year 3 $95000 $190000

Year 4 $65000 $250000

Year 5 $300000

Listed above are the cash flows for two mutually exclusive projects (A&Z) that Britannia Inc. is considering. Given this
information determine:

Given the firm%u2019s cost of capital is 16% calculate the Net Present Value Profitability
Index and Internal Rate of Return (You may use your calculator for IRR) for
both projects and explain based upon each technique whether the project is acceptable.

Construct the NPV profile given possible costs of capital of 0% 4% 8% 12% 16% and 20% and determine the Fisher Rate of
Intersection. (You may use your calculator to calculate the NPVs)

Given your answers in (b) at which costs of capital would the firm choose Project A? Project Z?
Neither?