Question: Two mutually exclusive projects are being evaluated. Each project has an initial outlay of $50,000 with salvage of $2,000 and a required return of 15%.

Two mutually exclusive projects are being evaluated. Each project has an initial outlay of $50,000 with

salvage of $2,000 and a required return of 15%. The after-tax PROFITS for the two projects are:

Year Project A Project B

1 ($7,000) $8,000

2 6,000 $ 8,000

3 13,000 $8,000

4 18,000 $6,000

(i) Compute each projects ARR, Payback Period, Discounted Payback Period, NPV, PI, EAB and IRR? (ii) Using the information calculated; which project should be selected?

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