X-treme Vitamin Company is considering two investments, both of which cost $36,000. The cash flows are as follows:

Year	Project A			Project B
1	$	38,000		$	30,000
2		10,000			8,000
3		12,000			18,000

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.)

	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 7 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 A
	Project B

c.

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

	Net present value method
	Payback method

Appendix B Present value of $1, PVF PV=FVIgenn Percent 0.971 0.901 0.961 0.942 0.924 2 0.890 0.971 0.731 0.888 0.763 0.735 0.708 0.951 6 0.837 0.596 0.50 0.583 0.923 0.853 0.582 0.502 0.592 0.36 0.429 0.397 0.585 0.388 0.287 0.257 0.475 0.701 0.681 0.661 0.557 0.497 0.232 0.299 0.275 0.252 0.263 0.728 0.188 0.270 0.250 0.232 0.215 0.146 0.700 0.587 0.570 0.130 0.828 0.820 0.277 0.258 0.475 0.456 0.375 0.308 0.208 0.673 0.478 0.233 0.174 0.074 0.059 0.742 0.075 0.057 0.142 0.087 0.307 Appendix B (concluded) Present value of $1 Percent 35% 50% 0.870 0.800 0.743 0.592 0.675 0.658 0.624 0.609 0.406 0.482 0.350 0.269 0.207 0.260 0.223 6 0.305 0.263 0.266 0.225 0.243 0.209 0.247 0.195 0.168 0.162 0.137 0.025 0.237 0.208 0.231 0.124 0.025 0.020 0.003 0.002 0.002 0.088 0.084 0.008 0.006 0.107 0.080 0.081 0.070 0.061 0.095 0.059 0.051 0.043 0.031 0.026 0.087 0.047 0.073 0.001 0.001 0.005 0.001 0.001 0 0 0 0 0 0 0