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What is the payback period for project A

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Question - Your firm is subject to capital rationing and can only invest $60,000. You've estimated the following cash flows (in $) for two projects:

Year

Project A

Project B

0

-51,000

-51,000

1

10,000

30,000

2

20,000

20,000

3

30,000

10,000

4

40,000

0

The required return for both projects is 8%.

Required -

Part 1 - What is the payback period for project A?

Part 2 - What is the payback period for project B?

Part 3 - Which project seems better according to the payback method?

Part 4 - What is the NPV for project A?

Part 5 - What is the NPV for project B?

Part 6 - Which project seems better according to the NPV method?

Compare the answers to parts 3 and 6. If both projects are mutually exclusive, which one should you accept?

Reference no: EM132980480

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