QUESTION 8 (8 marks) The Symington Corporation Ltd. is considering investing in one of the two mutually exclusive projects. Project A requires an immediate cash outlay of $2,000, while project B requires an immediate cash outlay of $2,200. Project A has a life of four years, and Project B has a life of five years. The cost of capital for Symington is 10%. Net cash flows generated by each investment have been as follows: Year 0 1 2 3 4 5 Investment A ($2,000) $500 $600 $800 $1,000 -0- B ($2,200) $1,200 $500 $800 $600 $200

a. Calculate payback for each investment. (2 marks)

Year 1 2 3 4 5 A $500 $600 $800 $1,000 -0- Payback (2,000) Year 1 2 3 4 5 B $1,200 $500 $800 $600 $200 Payback (2,200)

b. Calculate the Net Present Value (NPV) for each investment. (2 marks)

Year 0 1 2 3 4 5 NPV Investment A ($2,000) $500 $600 $800 $1,000 -0- PV ($2,000) B ($2,200) $1,200 $500 $800 $600 $200 PV ($2,200)

c. Calculate the Internal Rate of Return (IRR) for each investment. (2 marks)

d. Which investment would you select? Why? (2 marks)