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In: Accounting

You have joined the Projects division of MaraMore Inc. Your first job is to analyze two...

  1. You have joined the Projects division of MaraMore Inc. Your first job is to analyze two projects, which you have code-named “alpha” and “beta”. Both projects will require the same initial investment of $100,000 and are expected to generate the following cash flows over an economic life of 4 years.

Year

Project “Alpha”

Project “Beta”

1

70,000

40,000

2

32,000

40,000

3

32,000

40,000

4

9,000

40,000

Assuming that MaraMore Inc.’s cost of capital for these projects is 10%:

  1. Calculate its (1) payback period and (2) discounted payback period. Which project would you select under these methods? Explain your answer.
  2. Calculate the NPV for each project and indicate which one you would undertake using this decision?

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Expert Solution

ekkarill92 answered 2 years ago
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