Your company can invest in 1 of the following 2 projects

YEAR PROJECT A. PROJECT B

0 -60,00 -55,000

1 12,000. 8,000

2 15,000 8,000

3 15,000 8,000

4 20,000 8,000

5 9,000 25,000

6 8,000. 30,000

Whichever project is chosen, if any, your company requires a 7% return on your investment.

8a. What is the payback period for each project?

8b. If you base your decision on which project has the shortest payback, which will you choose?

8C. What is the internal rate of return for each project?

8D. If you base your decision on the IRR, which will you choose?

8E. The CEO of your company notes that both projects cost about the same, and both last for 6 years.Therefore, she suggests that the company pursue the project with the shortest payback. However, she does not want to be short sighted, and wants to know which project adds the most value to the company.What is the net present value of each project? (Remember, the interest rate is 7%)

8.F.Considering the answers to questions, which project should you recommend to the CEO?

Answer rating: 100% (QA)

Lets start by calculating the payback period for each project Project A Initial Investment 60000 Year 1 Cash Flow 12000 Year 2 Cash Flow 15000 Year 3 ... View the full answer