A company is considering two mutually exclusive projects. The firm has a 12% cost of capital , has estimated the cash flows as below:

	Project A	Project B
Initial Investment	-$500,000	-$500,000
Year	Cash Inflows
1	$ 150,000	$ 300,000
2	$ 150,000	$ 200,000
3	$ 150,000	$ 150,000
4	$ 150,000	$ 50,000
5	$ 150,000	$ 40,000
6	$ 150,000	$ 20,000

(1) Calculate the payback period for each project. Which project is preferred according to this technique?

(2) Calculate the NPV of each project. Which project is preferred according to this technique?

(3) Derive the IRR of each project. Which project is preferred according to this technique?

(4) Which project would you recommend? Why?

(5) If Project A and B are independent projects, will you accept Project A? Will you accept Project B? Why?

Rubric