X-treme Vitamin Company is considering two investments, both of which cost $42,000. The cash flows are as follows:
Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator
a-1. Calculate the payback period for Project A
and Project B. (Round your answers to 2 decimal
a-2. Which of the two projects should be chosen
based on the payback method?
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.)
b-2. Which of the two projects should be chosen based on the net present value method?
c. Should a firm normally have more confidence in the payback method or the net present value method?
|Net present value method
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