Reference no: EM133121987

All techniques, conflicting rankings

Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, each with an initial investment of $150,000. The company's board of directors has set a 4-year payback requirement and has set its cost of capital at 9%. The cash flows associated with the two projects are shown in the following table:

Year: 1

Project A: $45,000

Project B: $75,000

Year: 2

Project A: $45,000

Project B: $60,000

Year: 3

Project A: $45,000

Project B: $30,000

Year: 4

Project A: $45,000

Project B: $30,000

Year: 5

Project A: $45,000

Project B: $30,000

Year: 6

Project A: $45,000

Project B: $30,000

a. Calculate the payback period for each project. Rank the projects by payback period.

b. Calculate the NPV of each project. Rank the project by NPV.

c. Calculate the IRR of each project. Rank the project by IRR.

d. Make a recommendation.