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Question 4There are two projects with equal payback period

Finance Dec 24, 2020

Question 4There are two projects with equal payback period. Which of the two projects should the company invest in and why:

Project A returns $800’000 the first year, $200’000 the second year and $200’000 the third year

Project B returns $200’000 the first year, $800’000 the second year and $200’000 the third.

Expert Solution

Project A , as larger payments are earlier in time leading to lower discounting of cash flow causing NPV to be higher

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