Question: A firm is comparing two projects, A and B, with the following cash flows: Year Project A Project B 0 -$5,000 -$5,000 1 $1,500 $1,000
A firm is comparing two projects, A and B, with the following cash flows:
Year | Project A | Project B |
0 | -$5,000 | -$5,000 |
1 | $1,500 | $1,000 |
2 | $2,000 | $2,000 |
3 | $2,500 | $2,500 |
4 | $3,000 | $3,500 |
Requirements:
- Calculate the NPV of each project if the discount rate is 8%.
- Determine the IRR for both projects.
- Calculate the payback period for each project.
- Based on NPV and IRR, which project should the firm choose?
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