Marva Donuts is replacing an old equipment with a more efficient product. Two products are being considered. They have different costs and different cash flows, as shown below:

Year Project A Project B

0 -$150,000 -$250,000

1 50,000 60,000

2 50,000 60,000

3 50,000 120,000

4 50,000 120,000

The required return of Marva is 8%.

(a) What is the NPV of each project and which product should be chosen? (10 pts)

(b) Calculate the payback period for each product. If the payback cutoff is 4 years, which project should be chosen? (5 pts)