5. Consider the following two mutually exclusive projects:

Year Cash Flow (A) Cash Flow (B)

0 $365,000 $40,000

1 38,000 20,300

2 47,000 15,200

3 62,000 14,100

4 455,000 11,200

The required return on these investments is 13 percent.

5.1 What is the payback period for each project?

5.2 What is the NPV for each project? Based on the NPVs, which project will you invest? Why?

5.3 a) In order to estimate the IRRs of the projects, please set up the numerical equations with the cash

flow values from Project A and B. ( You dont need actually solve the equations)

b) The IRRs for each project have been found out as below. which project will you invest? Why?

IRR of Project A =15.41 %

IRR of Project B = 21.51 %

5.4 What is the profitability index for each project?

5.5 Based on the information found out in (5.1) through (5.4), which project will you finally choose?