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Zephyr Industries is evaluating two potential projects with the following net cash flows. The company's...

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Accounting

Zephyr Industries is evaluating two potential projects with the following net cash flows. The company's required rate of return on investments is 12%.

Project A:

  • Initial Investment: $(240,000)
  • Year 1: $85,000
  • Year 2: $90,000
  • Year 3: $95,000
  • Year 4: $100,000

Project B:

  • Initial Investment: $(260,000)
  • Year 1: $80,000
  • Year 2: $85,000
  • Year 3: $90,000
  • Year 4: $110,000

a. Compute the payback period for each project. Based on the payback period, which project is preferred?

b. Compute the net present value (NPV) for each project. Based on NPV, which project is preferred?

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