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A company has $250,000 to be invested in either Project A or Project B with the following cash flows: Year Project A Project B 1
A company has $250,000 to be invested in either Project A or Project B with the following cash flows:
Year | Project A | Project B |
1 | $50,000 | $20,000 |
2 | $50,000 | $40,000 |
3 | $50,000 | $80,000 |
4 | $50,000 | $100,000 |
5 | $50,000 | $60,000 |
The current cost of capital is 10%.
Required:
- Calculate for each project the:
- Simple payback period
- Discounted payback period
- Net present value
- Internal rate of return
- Profitability index
- Based on your results, advise the firm on the better investment option.
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