Managerial Finance Question:

You are assigned as an assistant to the financial vice president of a company. Your task is to evaluate two project proposals (Project A & Project B) and help the VP make a decision.

Project A has an initial cost of $120,000 expected net cash inflows of $42,000 per year for 3 years, and a cost of capital of 8%.

1. Calculate the Normal Payback Period.
2. Calculate the Discounted Payback Period.
3. Calculate the NPV.

Project B has an initial cost of $100,000 expected net cash inflows of $45,000 per year for 3 years, and a cost of capital of 9%.

1. Calculate the Normal Payback Period.
2. Calculate the Discounted Payback Period.
3. Calculate the NPV.

Concept Questions

1. Assume projects A and B are mutually exclusive, which project should be accepted based on NPPs and DPPs results and why?
2. Assume projects A and B are mutually exclusive, which project should be accepted based on NPVs results and why?