Question

[Use the following information to answer the next 6 questions.]

A firm has a WACC of 8% and is deciding between two mutually exclusive projects. Project A has an initial investment of $63. The additional cash flows for project A are: year 1 = $20, year 2 = $39, year 3 = $67. Project B has an initial investment of $73.The cash flows for project B are: year 1 = $60, year 2 = $45, year 3 = $32.

a. What is the payback for project A? (Show your answer to 2 decimals.)

b. What is the payback for project B? (Show your answer to 2 decimals.)

c. Which project is preferred based on the payback method?

Group of answer choices

A.) Project B

B.) Project A

C.) Accept both A & B

D.) Neither Project should be accepted

d. What is the NPV for project A? (2 decimals)

e. What is the NPV for project B? (2 decimals)

f. Which Project should be accepted?

Answer 1