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XYZ Company has two good businesses. Each has an initial investment of $ 25,000 with each...

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Finance

XYZ Company has two good businesses. Each has an initialinvestment of $ 25,000 with each cash flow as follows:

YearBusiness 1 Cash FlowBusiness 2 Cash Flow
17,5007,500
27,0007,500
36,0007,500
45,0007,500
53,5007,500

If the cost of capital is 12.5%, calculate:

A. Payback Period and NPV

B. In your opinion, which business is better chosen?Business 1 and Business 2? And Why?

Answer & Explanation Solved by verified expert
4.3 Ratings (719 Votes)
ABusiness 1 Payback period full years until recovery unrecovered cost at the start of the yearcash flow during the year 3 years 25000 20500 5000 3 years 4500 5000 3 years 090 390 years Net present value is solved here using a financial calculator The steps to solve on the financial calculator    See Answer
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