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Calculate the payback period of the two projects

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ABC Inc. is considering two independent projects . Both projects have an initial cost of $38,000. The cash inflows of Project AA are $6,000, $10,000, $16,000 and $25,000 respectively over the next four years. The cash inflows of Project BB are $18,000, $16,000, $10,000 and $6,000 over the next four year s, respectively. The required yearly rates of return of both projects are 8%.

(a) Calculate the net present value of the two projects.

(b) Calculate the payback period of the two projects.

(c) What is the investment decision based on the net present value? Explain.

(d) What is the investment decision based on the payback period if the cutoff period for any project is 3 years ? Explain.

(e) What is the investment decision based on the IRR criterion ? Explain.

Reference no: EM131923866

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