Question: Problem 12-10 Payback and net present value [LO3, 4] X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash flows are

Problem 12-10 Payback and net present value [LO3, 4] X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash flows are as follows: a-1. Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.) a-2. Which of the two projects should be chosen based on the payback method? b-1. Calculate the net present value for Project A and Project B. Assume a cost of capital of 10 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places.) b-2. Which of the two projects should be chosen based on the net present value method? c. Should a firm normally have more confidence in the payback method or the net present value method?
Input variables:
Investment amount $10,000
Cash flows: Investment A Investment B
Year 1 $12,000 $10,000
Year 2 8,000 6,000
Year 3 6,000 16,000
b-1. Cost of capital .10 Input as a decimal
Appendix values:
Year 1 .909
Year 2 .826
Year 3 .751

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