Question 10

Assume the following cash flows for Project P and Project Q:

Year	Project P	Project Q
0	-85000	-115000
1	25000	28000
2	30000	32000
3	35000	37000
4	40000	42000
5	45000	47000
6	50000	52000

Requirements:

1. Calculate the NPV for both projects with a discount rate of 12%.
2. Determine the IRR for each project.
3. Calculate the payback period for both projects.
4. State which project(s) should be selected if they are independent.
5. State which project should be selected if they are mutually exclusive.

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###Question 1###

Your company is evaluating two investment projects, Project A and Project B. The following are the projected net cash flows for each project over a four-year period:

Projected Net Cash Flows (in thousands of dollars)

Year 0

• Project A: $(150)$
• Project B: $(200)$

Year 1

• Project A: $60$
• Project B: $80$

Year 2

• Project A: $90$
• Project B: $100$

Year 3

• Project A: $120$
• Project B: $140$

Requirements:

1. Calculate the Net Present Value (NPV) for each project, assuming a discount rate of $12%$.
2. Determine the Internal Rate of Return (IRR) for each project.
3. Find the payback period for each project.
4. Discuss which project is preferable based on NPV, IRR, and payback period.
5. Analyze any potential risks associated with each project.