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Explain the basis of the payback period

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Reference no: EM132803208

Answer the following parts a and b:

a. Two projects, A and B, provide the following cash flows over a period of six years. Which one of these projects will be selected on the basis of the payback period?

Year 0 1 2 3 4 5 6

A - 100 20 30 50 10 10 0

B - 100 10 20 30 40 70 80

b. Assuming that the cost of capital is 10 % , calculate the NPV of projects A and B as defined in the part a. Assume a tax rate of 20 %, calculate after tax NPV? If the two projects are mutually exclusive , which one will be preferred?

Reference no: EM132803208

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