Consider the following two mutually exclusive projects, each of which require an initial investment of $100,000 and have no salvage value. This organization, which has a cost of capital of 15%, must choose one or the other, ignore taxes.

          Year      Project A     Project B      

            1           $10,000      $50,000 

            2           20,000        40,000 

            3           30,000        30,000 

            4           40,000        20,000 

            5           50,000        10,000 

a. Compute the payback period of these two projects. Using the payback criterion, which

    project is more desirable?

 b. Calculate the Net Present Value for each project

c. Calculate the profitability  index

d. Which is the better investment? Why? 

Answer rating: 100% (QA)

a To compute the payback period for each project we need to determine the number of years it takes for the cumulative cash inflows to equal or exceed ... View the full answer