Your firm is subject to capital rationing and can only invest $60,000. You've estimated the...
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Accounting
Your firm is subject to capital rationing and can only invest $60,000. You've estimated the following cash flows (in $) for two projects:
| Year | Project A | Project B |
|---|---|---|
| 0 | -52,000 | -52,000 |
| 1 | 10,000 | 30,000 |
| 2 | 20,000 | 20,000 |
| 3 | 30,000 | 10,000 |
| 4 | 40,000 | 0 |
The required return for both projects is 8%
a. What is the payback period for project A?
b. What is the payback period for project B?
c. Which project seems better according to the payback method?
d. What is the NPV for project A?
e. What is the NPV for project B?
f. Which project seems better according to the NPV method?
g. Compare the answers to parts 3 and 6. If both projects are mutually exclusive, which one should you accept?
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