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Two investments that Lara Fredericks is considering are mutually exclusive. The same 6year time frame is shared by both investments. Lara anticipates receiving equal and subsequent yearend payouts of $3,000 after the initial investment, which costs$10,000. The second investment calls for an initial commitment of $12,000 and offers subsequent payouts of$3,800 in equal amounts. For the first investment, the needed return is currently 8.5%, and for the second, it is 10.5%. What is the net present value of the second investment?
Solution
VerifiedFor this exercise, we will consider a firm with two mutually exclusive projects. We are asked to:

Compute for the Net Present Value of each Project

Tell and argue for the preferred project

Explain which project is considered as riskier
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