X-treme Vitamin Company is considering two investments, both of which cost $30,000. The cash flows are as follows:

Year Project A Project B

1 $32,000 $30,000

2 15,000 14,000

3 6,000 11,000

Calculate your answer using the formula and financial calculator methods.

a-1. Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.) Payback Period Project A year(s) Project B year(s)

a-2. Which of the two projects should be chosen based on the payback method?

Project A

Project B

b-1. Calculate the net present value for

Project A and

Project B.

Assume a cost of capital of 8 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places.)

Net Present Value

Project A

Project B

b-2. Which of the two projects should be chosen based on the net present value method? Project B

Project A

c. Should a firm normally have more confidence in the payback method or the net present value method?

Net present value method

Payback method