Note the following information on two mutually exclusive projects under consider¬ation by Wang Food Markets, Inc.
Annual Cash Flows
|
Year
|
A
|
B
|
|
0
|
$ -30,000
|
$ -60,000
|
|
1
|
10,000
|
20,000
|
|
2
|
10,000
|
20,000
|
|
3
|
10,000
|
20,000
|
|
4
|
10,000
|
20,000
|
|
5
|
10,000
|
20,000
|
Wang requires a 14 percent rate of return on projects of this nature.
a. Compute the NPV of both projects.
b. Compute the internal rate of return on both projects.
c. Compute the profitability index of both projects.
d. Compute the payback period on both projects.
e. Which of the two projects, if either, should Wang accept? Why?