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Neil Corporation has three projects under consideration. The cash flows for each of them are shown in the following table: Project A Project B Project
Neil Corporation has three projects under consideration. The cash flows for each of them are shown in the following table:
| Project A | Project B | Project C |
| ||
| Initial investment (CF 0CF0) | $40,000 | $40,000 | $40,000 | ||
| Year (t) | Cash inflows | ||||
| 1 | $14,000 | $6,000 | $22,000 | ||
| 2 | $14,000 | $10,000 | $18,000 | ||
| 3 | $14,000 | $14,000 | $14,000 | ||
| 4 | $14,000 | $18,000 | $10,000 | ||
| 5 | $14,000 | $22,000 | $6,000 | ||
The firm has a cost of capital of 16%.
a.Calculate each project's payback period.
Which project is preferred according to this method?
b.Calculate each project's net present value (NPV).
Which project is preferred according to this method?
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