Innovatech has the following net cash flows for two projects. The company’s cost of capital...
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Innovatech has the following net cash flows for two projects. The company’s cost of capital is 11%. (PV of $1 = 0.901, PVIFA of $1 = 3.696, FV of $1 = 1.110, FVA of $1 = 4.713)
Year | Project I Cash Flow | Project J Cash Flow |
0 | $(750,000) | $(550,000) |
1 | $180,000 | $150,000 |
2 | $220,000 | $200,000 |
3 | $270,000 | $250,000 |
4 | $320,000 | $280,000 |
5 | $360,000 | $300,000 |
a. Calculate the payback period for both projects. Which project is preferred based on the payback period?
b. Compute the net present value for each project. Which project should be selected based on the net present value?
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