Question 3

A firm is evaluating two independent projects, A and B, with the following details:

Project A:

• Initial cost: $40,000
• Annual cash inflow: $10,000 for 6 years

Project B:

• Initial cost: $60,000
• Annual cash inflow: $15,000 for 6 years

Requirements:

1. Calculate the payback period for each project.
2. Determine the NPV of each project at a 12% discount rate.
3. Compute the IRR for each project.
4. Recommend which project(s) to undertake based on NPV and IRR.