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solution

FPT is considering two projects, A & B, with cash flows as
shown below:

year CFa CFb

1

-50,000 -100,000
2 20,000 60,000
3 20,000 25,000
4 20,000 25,000

The opportunity cost of capital for B is 10%. a) Calculate the
NPV for each project. b) Calculate the IRR for each project. c)
Which project(s) should be accepted in each of the following
situations:

i. The projects are mutually exclusive and there is no capital
constraint.

ii. The projects are independent and there is no capital
constraint.

iii. The projects are independent and there is a total of
$100,000 of financing for capital outlays in the coming period.

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