30,000 10,000 85,000 10,000 a. Using the payback method, what will the decision be? b. Explain why the answer in part a can be misleading. X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash flows are as follows: 10. Project A $12,000 3,000 6,000 Project B $10,000 6,000 16,000 Year 2 3 Which of the two projects should be chosen based on the payback method? a. b. Which of the two projects should be chosen based on the net present value method? Assume a cost of capital of 10 percent. c. Should a firm normally have more confidence in answer a or answer b? 11. You buy a new piece of equipment for $16,230, and you receive a cash inflow of $2,500 per year for 12 years. What is the internal rate of return? King's Department Store is contemplating the purchase of a new machine at a cost of $22,802. The machine will provide $3,500 per year in cash flow 12