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Calculate the net present value for each project

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Reference no: EM131105038

The following two projects of equal risk are mutually exclusive alternatives for expanding the firm's capacity. The firm's cost of capital is 10%. The cash flows for each project are given in the following table.

PROJECT A

PROJECT B

Initial investment

200,000

45,000

Year

Net cash inflows

Net cash inflows

1

60,000

13,000

2

49,000

21,500

3

135,000

18,000

4

175,000

25,200

Required:

(i) Calculate the net present value for each project. Using the net present value criterion, which project is preferable?

(ii) Calculate each project's payback period. Using the payback period criterion which project is preferable?

(iii) Calculate the profitability index. Using the profitability index criterion which project is acceptable?

Also show what formula you use and by steps PLEASE!

Reference no: EM131105038

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