The CFO at Rabbit Corporation has asked you to analyze two proposed capital investments, Projects A and B. Each project has a cost of $10,000, and the cost of capital is 12% for each. The projects' expected net cash flows are as follows:
|
Expected Net Cash Flows
|
|
Year
|
Project A
|
Project B
|
|
0
|
(10,000)
|
(10,000)
|
|
1
|
6,500
|
3,500
|
|
2
|
3,000
|
3,500
|
|
3
|
3,000
|
3,500
|
|
4
|
1,000
|
3,500
|
1. Calculate each project's payback period.
2. Calculate each project's net present value (NPV).
3. Calculate each project's internal rate of return (IRR).
4. Calculate each project's profitability index (PI).