Problem:
Consider two mutually exclusive investment projects, project A and project B. You are given project A has an expected life of 3 years and project B has an expected life of 9 years. Project A has expected future net cash flows in each of years 1-3 of $12,600. Project B has expected future net cash flows in each of years 1-9 of $6,700. The initial investment required for each project is $20,000. Assume a required rate of return of 15% per annum for each project.
(a) Calculate the payback period for project A and for project B.
(b) Calculate the net present value (NPV) for project A and for project B.
(c) Calculate the internal rate of return (IRR) for project A and for project B.
(d) Is project A an acceptable investment project? Is project B an acceptable investment project? Explain your answers.
Additional Information:
This question basically belongs to Finance as well as it explains about computation of payback period, net present value, profitability index and internal rate of return for two projects and select the best out of the two.