All techniques with NPV profileMutually exclusive projects

Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 14%. The cash flows for each project are shown in the following table:

Initial investment Project A: $60,000

Initial investment Project B: $30,000

Year: 1

Project A Cash Flow: $10,000

Project B Cash Flow: $10,000

Year: 2

Project A Cash Flow: $15,000

Project B Cash Flow: $10,000

Year: 3

Project A Cash Flow: $20,000

Project B Cash Flow: $10,000

Year: 4

Project A Cash Flow: $25,000

Project B Cash Flow: $10,000

Year: 5

Project A Cash Flow: $30,000

Project B Cash Flow: $10,000

a. Calculate each project's payback period.

b. Calculate the net present value (NPV) for each project.

c. Calculate the internal rate of return (IRR) for each project.

d. Indicate which project you would recommend.