XYZ Company is considering two investments, both of which cost $40,000. The firms cost of capital is 15 percent. The cash flows are as follows:

Year Project A ($) Project B($ )

1 30,000 25,000

2 8,000 15,000

3 10,000 15,000

4 10,000 8,000

(a) What is the payback period for each project? Which project would you accept based on the payback period?

(b) What is the discounted payback for each project? Which project would you accept based on the discounted payback criterion?

(c) Calculate the NPV of each project? Which project would you choose based on the NPV criterion?

(d) Based on the IRR criteria which project would you choose if they were mutually exclusive? Show all workings.