Should a firm normally have more confidence in the payback

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Reference no: EM132060712

Question

X-treme Vitamin Company is considering two investments, both of which cost $51,000. The cash flows are as follows:

Year	Project A		Project B
1	$	56,000	$	51,000
2		20,000		20,000
3		18,000		24,000

Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a-1. Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.)

a-2. Which of the two projects should be chosen based on the payback method?

Project A

Project B

b-1. Calculate the net present value for Project A and Project B. Assume a cost of capital of 8 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places.)

b-2. Which of the two projects should be chosen based on the net present value method?

Project B

Project A

c. Should a firm normally have more confidence in the payback method or the net present value method?

Payback method

Reference no: EM132060712

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