Johnson Company is considering two alternative investments in equipment for a five-year period. Bonuses are determined by the company's return on investment (ROI), which has exceeded 21% each of the last three years. Cost and revenue estimates for each project are as follows:

Johnson's discount rate is 19%

View Exhibits 12B-1 and 12B-2, in Appendix 12B: Present Value Tables of your textbook, to determine the appropriate discount factor (Brewer, Garrison, & Noreen, 2019, pp. 612 - 613).

You are required to compute the following:

1. Calculate the payback period for each project.

2. Calculate the net present value (NPV) for each project.

3. Calculate the internal rate of return (IRR) for each project.

4. Prepare a memo to the division president. State which project Johnson Company should invest in. Explain your answer.

Project A Project B $480,000 $270,000 Investment required Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $420,000 $198,000 $96,000 $57,000 $320,000 $148,000 $54,000 $77,000 1. Payback Period Project A Project B Sales revenues Variable expenses Fixed out-of-pocket operating costs Annual net cash inflows Investment required Annual net cash inflow Payback period (in years) 2. Net Present Value (NPV) Now Years 1-5 Project A Purchase of equipment Sales Variable expenses Fixed out-of-pocket costs Total cash flows Discount factor () - use tables Present value Net present value 1 Now Years 1-5 Project B Purchase of equipment Sales Variable expenses Fixed out-of-pocket costs Total cash flows Discount factor () - use tables Present value Net present value 3. Internal Rate of Return (IRR) Project A Project B Investment required Annual net cash inflow Factor of the internal rate of return Internal Rate of Return (estimated) - Use the Exhibit 12B-2 table