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Paragraph format:You have four investment opportunities with the following cash flows over four years. Project...

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Question

Accounting

Paragraph format:

You have four investment opportunities with the following cash flows over four years. Project A requires an initial investment of ?12,000 and returns ?4,000, ?4,000, ?4,000, and ?4,000 in each subsequent year. Project B needs ?10,000 upfront and yields ?3,000, ?3,000, ?4,000, and ?5,000. Project C requires ?8,000 and returns ?2,000, ?3,000, ?3,000, and ?4,000. Project D demands ?6,000 initially and generates ?1,000, ?2,000, ?3,000, and ?4,000.

Required:

  1. Determine the payback period for each project.
  2. If a standard payback period is set at 2 years, which project would you choose?
  3. Calculate the discounted payback period for each project at a 10% discount rate.
  4. Compute the NPV for each project at a 10% discount rate.
  5. Assess which project is preferable based on the NPV method.

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