Question: please show me how to work through this example P10-24 All techniques with NPV profile - Mutually exclusive projects Projects A and B, of equal
P10-24 All techniques with NPV profile - Mutually exclusive projects Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 13%. The cash flows for each project are shown in the following table. 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. Draw the net present value profiles for both projects on the same set of axes, and discuss any conflict in ranking that may exist between NPV and IRR. e. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why. CHAPTER 10 Capital Budgeting Techniques 423 Project A $80,000 Project B $50,000 Initial investment (CF) Year (1) 1 2 3 + Cash inflows (CF) $15,000 $15,000 20,000 15,000 25,000 15,000 30,000 15,000 35,000 15,000 4
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