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The CFO of Advo Corporation is considering two investment opportunities The expected future cash inflows for each opportunity follow

The CFO of Advo Corporation is considering two investment opportunities. The expected future cash inflows for each opportunity follow.

 

Year 1

Year 2

Year 3

Year 4

Project 1

$144,000

$147,000

$160,000

$178,000

Project 2

204,000

199,000

114,000

112,000

Both investments require an initial payment of $400,000. Advo’s desired rate of return is 16 percent.

Required

a. Compute the net present value of each project. Which project should Advo adopt based on the net present value approach?

b. Based on the payback approach (incremental revenue summation method) which project should Advo adopt?

Jun 30 2020 View more View Less

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