E: 4

X-treme Vitamin Company is considering two investments, both of which cost$44,000. The cash flows are as follows:

Year 1 2 3

Project A $46,000 17,000 13,000

Project B $38,000 18,000 15,000

UseAppendixBfor an approximate answer but calculate your final answer using the formula and financial calculator methods.

a-1.Calculate the payback period for Project A and Project B.(Round your answers to 2 decimal places.)

Payback Period

Project A year(s)

Project B year(s)

a-2.Which of the two projects should be chosen based on the payback method?Project A or Project B

b-1.Calculate the net present value for Project A and Project B. Assume a cost of capital of 8 percent.(Do not round intermediate calculations and round your final answers to 2 decimal places.)

Net Present Value

Project A $

Project B $

b-2.Which of the two projects should be chosen based on the net present value method?

Project A or Project B

c.Should a firm normally have more confidence in the payback method or the net present value method?Net present value method or Payback method