Provide an explainationof the two projects both with 5 year expected lives and indentical initial outlays of 110000. The required rate of return on both the project is 12%.
Project A Project B
Initial outlay -110000 -110000
year 1 20000 40000
year 2 30000 40000
year 3 40000 40000
year 4 50000 40000
year 5 70000 40000
Questions: 1. What is the payback period on each project? I the company imposes a 3 year maximum acceptable payback period, which of these projects should be accepted?
Question 2: Determine the net present value of each oth project?
Question 3: Describe the logic behind net present value?
Question 4:Determine the modified internal rate of return for each project. Should they be accepted. Do you feel it is better evaluation technique than the internal rate of return? Why or why not?