Bader has been retained to analyze two proposed capital investment projects. projects X and Y. by Star Fashion LLC, a local specialty retailer. Project X is a sophisticated working capital and inventory control system based upon a powerful personal computer. called a system server and PC software specifically designed for inventory processing and control in the retailing business. Project Y is a similarly sophisticated working capital and inventory control system based upon a powerful personal computer and general-purpose PC software. Each project has a cost of S100,000, and the cost of capital for both projects is 12%. The projects' expected net cash flows are as follows:
Expected Net Cash Flow
Years
Project X
Project Y
0
($ 100,000)
($100,000)
1
65,000
35,000
2
30,000
35,000
3
10,000
35,000
4
10,000
35,000
A. Calculate each project's nominal payback period.
B. Calculate Net Present Value (NPV) and comment upon if the two projects are independent or interdependent.
Bader has been retained to analyze two proposed capital investment projects. projects X and Y. by Star Fashion LLC, a local specialty retailer. Project X is a sophisticated working capital and inventory control system based upon a powerful personal computer. called a system server and PC software specifically designed for inventory processing and control in the retailing business. Project Y is a similarly sophisticated working capital and inventory control system based upon a powerful personal computer and general-purpose PC software. Each project has a cost of S100,000, and the cost of capital for both projects is 12%. The projects' expected net cash flows are as follows:
Expected Net Cash Flow
| Years |
Project X |
Project Y |
| 0 |
($ 100,000) |
($100,000) |
| 1 | 65,000 | 35,000 |
| 2 | 30,000 | 35,000 |
| 3 | 10,000 | 35,000 |
| 4 | 10,000 | 35,000 |
A. Calculate each project's nominal payback period.
B. Calculate Net Present Value (NPV) and comment upon if the two projects are independent or interdependent.
