Reference no: EM132850081
Question - Your firm has estimated the following cash flows for two mutually exclusive capital investment projects. The firm's required rate of return is 10%. The firm uses 3 years as the cutoff for payback period method.
|
Year
|
Project A Cash Flow
|
Project B Cash Flow
|
|
0
|
-$185,000
|
-$410,000
|
|
1
|
55,000
|
120,000
|
|
2
|
55,000
|
120,000
|
|
3
|
55,000
|
110,000
|
|
4
|
45,000
|
110,000
|
|
5
|
45,000
|
90,000
|
|
6
|
45,000
|
60,000
|
Required -
a. What is the Payback Period of Projects A and B?
b. Which project would you accept on the basis of payback period?
c. What is the NPV of projects A and B?
d. Which project would you accept on the basis of NPV?
e. What is the PI of projects A and B?
f. Which project would you accept on the basis of PI?
g. What is the IRR of projects A and B?
h. Which project would you accept on the basis of IRR?
i. Is there a conflict between the methods?
j. Which project(s) would you accept and why?
k. What would be your answer to 10 above if the projects were independent?