Empire Manufacturing is considering two mutually exclusive projects with the following cash flows. Empires cost of capital is 10 percent.

Year Project A Project B

0 (485,000) (485,000)

1 0 155,000

2 0 152,000

3 0 131,000

4 0 110,000

5 0 108,000

6 1,000,000 98,500

a) Compute the NPV, IRR and Payback Period for each project. Assuming the projects were mutually exclusive:

b) If the payback criterion was four years, which project would be chosen?

c) If the hurdle rate was 13% which project would be chosen based on IRR?

d) Which project would be chosen if NPV was the decision method? Assuming the projects were independent:

e) If the payback criterion was four years, which project would be chosen?

f) If the hurdle rate was 13% which project would be chosen based on IRR?

g) Which project would be chosen based on NPV?