The State Spartan Corporation is considering two mutually exclusive projects. The free cash flows associated with these

Question:

The State Spartan Corporation is considering two mutually exclusive projects. The free cash flows associated with these projects are as follows:

PROJECT A PROJECT B

Initial outlay.........................-$50,000.......................-$ 50,000

Inflow year 1...........................15,625.................................0

Inflow year 2...........................15,625.................................0

Inflow year 3...........................15,625.................................0

Inflow year 4...........................15,625.................................0

Inflow year 5...........................15,625........................100,000

The required rate of return on these projects is 10 percent.

a. What is each project's payback period?

b. What is each project's NPV?

c. What is each project's IRR?

d. What has caused the ranking conflict?

e. Which project should be accepted? Why?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...