LG 4 LG 3 LG 5 P10-23 NPV, IRR, and NPV profiles Thomas Company is considering two mutually exclu- sive projects. The firm, which has a 12% cost of capital, has estimated its cash flows as shown in the following table. 474 PART 5 Long-Term Investment Decisions Initial investment (CF) Year (1) 1 2 Project A Project B $130,000 $85,000 Cash inflows (CF) $25,000 $40,000 35,000 35,000 45,000 30,000 50,000 10,000 55,000 5,000 3 4 5 a. Calculate the NPV of each project, and assess its acceptability. b. Calculate the IRR for each project, and assess its acceptability. c. Draw the NPV profiles for both projects on the same set of axes. d. Evaluate and discuss the rankings of the two projects on the basis of your find- ings in parts a, b, and c. e. Explain your findings in part d in light of the pattern of cash inflows associated with each project. LG 2 LG 3 P10-24 All techniques: Decision among mutually exclusive investments Pound Industries is attempting to select the best of three mutually exclusive projects. The initial invest- LG4 LG 5 ment and after-tax cash inflows associated with these projects are shown in the following table. LG 6 Cash flows Initial investment (CF) Cash inflows (CF), t = 1 to 5 Project A $60,000 20,000 Project B $100,000 31,500 Project C $110,000 32,500 a. Calculate the payback period for each project. b. Calculate the net present value (NPV) of each project, assuming that the firm has a cost of capital equal to 13%. c. Calculate the internal rate of return (IRR) for each project. d. Draw the net present value profiles for both projects on the same set of axes, and discuss any conflict in ranking that may exist between NPV and IRR