A firm with a 12% WACC is evaluating two projects for this year’s capital budget. After-tax cash flows, including depreciation, are as follows:
0 1 2 3 4 5
| | | | | |
Project A -16,000 5,000 5,000 5,000 5,000 5,000
Project B -27,000 8,200 8,200 8,200 8,200 8,200
Calculate payback period, NPV, and IRR for each project. Assuming the projects are independent, which one or ones would you recommend? If the projects are mutually exclusive, which would you recommend?