Question - You are trying to decide whether to invest $5,000 in project A or project B. The after tax cash flows for each project are given below.
|
Year
|
Project A
|
Project B
|
|
0
|
-5,000
|
-5,000
|
|
1
|
1,000
|
1,000
|
|
2
|
2,000
|
1,000
|
|
3
|
2,000
|
2,500
|
|
4
|
2,500
|
2,000
|
a) Find both projects' payback period. Which one would you choose?
b) Find both projects' net present value using a discount rate of 12%. Which one would you choose?
c) Find both projects' benefit/cost ratio. Which one would you choose?
d) Compute project's A net present value using a discount rate of 16%. What is, approximately, the IRR of project A?