Computation net present value and payback period

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Reference no: EM1312711

Computation net present value and payback period.

Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 13 percent. The cash flows for each project are shown in the following table.

	Project A	Project B
Initial Investment (CF0)	Rs. 80,000	Rs. 50,000
Year (t)	Cash inflows (CFt)
1	Rs. 15,000	Rs. 15,000
2	20,000	15,000
3	25,000	15,000
4	30,000	15,000
5	15,000	15,000

1. Calculate each project's payback period.

2. Calculate the net present value (NPV) for each project.

3. Calculate the internal rate of return (IRR) for each project.

4. Draw the net present value profiles for both projects on the same set of axes, and discuss any conflict in ranking that may exist between NPV and IRR.

5. Summairze the preferences dictated by each measure, and indicate which project you would recommend. Explain why.

Reference no: EM1312711

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