P10–12 Payback and NPV Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16%

cost of capital.

a. Calculate each project’s payback period. Which project is preferred according to this method?

b. Calculate each project’s net present value (NPV). Which project is preferred according to this method?

c. Comment on your findings in parts a and

b, and recommend the best project.
Explain your recommendation.

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Project A Project B Project C Initial investment (CF) $40,000 $40,000 $40,000 Year (t) Cash inflows (CF,) 1 $13,000 $ 7,000 $19,000 2 13,000 10,000 16,000 3 13,000 13,000 13,000 4 13,000 16,000 10,000 5 13,000 19,000 7,000