Question: Thomas Company is considering two mutually exclusive projects. The firm, which has a 12% cost of capital, has estimated its cash flows as shown in

Thomas Company is considering two mutually exclusive projects. The firm, which has a 12% cost of capital, has estimated its cash flows as shown in the following table.

a. Calculate the NPV of each project, and assess its acceptability.
b. Calculate the IRR for each project, and assess its acceptability.
c. Draw the NPV profiles for both projects on the same set of axes.
d. Evaluate and discuss the rankings of the two projects on the basis of your findings in parts a, b, and c.
e. Explain your findings in part d in light of the pattern of cash inflows associated with eachproject.

Project A Project B Initial investment (CFo) $130,000 85,000 Year (t) Cash inflows (CF) $25,000 35,000 45,000 50,000 55,000 $40,000 35,000 30,000 10,000 5,000 4

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a and b Project A CF 0 130000 CF 1 25000 CF 2 35000 CF 3 45000 CF 4 50000 CF 5 55000 Set I 12 NPV A ... View full answer

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