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:
Year
Business 1 Cash Flow
Business 2 Cash Flow
1
7,500
7,500
2
7,000
7,500
3
6,000
7,500
4
5,000
7,500
5
3,500
7,500
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
4.1 Ratings (784 Votes)
Step1Calculation of payback period Payback period is the time within cost of project is recovered back Payback period is calculated as follows Business 1 Business 2 Year Cash flows Cumulative Cash flows Cash flows Cumulative Cash flows 0
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