X-treme Vitamin Company is considering two investments, both of which cost $16,000. The cash flows are as follows:

Year Project A Project B

1 $ 18,000 $ 16,000

2 8,000 7,000

3 6,000 11,000

Use Appendix B for an approximate answer but calculate your final 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.)

Project A years

Project B years

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 9 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places.)

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?

Payback method

Net present value method