The Sanders Electric Company is evaluating two projects for possible inclusion in the firm’s capital budget. Project M will require a $37,000 investment while project O’s investment will be $46,000. After-tax cash inflows are estimated as follows for the two projects: YEAR PROJECT M PROJECT O 1 $12,000 $10,000 2 12,000 10,000 3 12,000 15,000 4 12,000 15,000 5 15,000 a. Determine the payback period for each project. b. Calculate the net present value and profitability index for each project based on a 10 percent cost of capital. Which, if either, of the project is acceptable? c. Determine the internal rate of return and modified internal rate of return for Projects M and O.
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