Question: please solve and show all work and formulas: Projects A and B, of equal risk, are alternatives for expanding Rosa Companys capacity. The firms cost
please solve and show all work and formulas:
| Projects A and B, of equal risk, are alternatives for expanding Rosa Companys capacity. The firms cost of capital is 13%. The cash flows for each project are shown in the following table. | |||||||||||
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| Project A | Project B | |||||||||
| Initial investment (CF0) | -$80,000 | -$50,000 | |||||||||
| Year (t) | Cash inflows (CFt) | ||||||||||
| 1 | $15,000 | $15,000 | |||||||||
| 2 | 20,000 | $15,000 | |||||||||
| 3 | 25,000 | $15,000 | |||||||||
| 4 | 30,000 | $15,000 | |||||||||
| 5 | 35,000 | $15,000 | |||||||||
| a. | Calculate each projects 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 NPV 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. | ||||||||||
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