1.Graham's Fine Restaurants is considering two mutually exclusive projects with the following cash flow streams.

Year

Project A cash flows

Project B net cash flow

0

-$130,000

-$150,000

1

$40,000

$30,000

2

$40,000

$50,000

3

$40,000

$25,000

4

$40,000

$55,000

a.Compute the Payback Period for both projects.

b.Compute the NPV of both projects, using a 15% required rate of return.

c.Compute the PI of both projects, using the figures you calculated in part b.

d.Using interpolation, estimate the Internal Rate of Return for both projects.

e.Which project should the firm accept, and why?