Problem
Nicholson Roofing? Materials, Inc., is considering two mutually exclusive? projects, each with an initial investment of $110,000.
The company's board of directors has set a? 4-year payback requirement and has set its cost of capital at 7?%.
The cash inflows associated with the two projects are shown in the following? table:.
a. Calculate the payback period for each project. Rank the projects by payback period.
b. Calculate the NPV of each project. Rank the project by NPV.
c. Calculate the IRR of each project. Rank the project by IRR.
d. Make a recommendation.
|
Year
|
Project A
|
Project B
|
|
1
|
$35,000
|
$75,000
|
|
2
|
$35,000
|
$70,000
|
|
3
|
$35,000
|
$10,000
|
|
4
|
$35,000
|
$10,000
|
|
5
|
$35,000
|
$10,000
|
|
6
|
$35,000
|
$10,000
|