Mutually exclusive projects Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity

Mutually exclusive projects Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 13%. The cash flows for each project are shown in the following table.

Project A Project B
Initial Investment(CF) $80,000 $50,000
Year Cash Inflows(CF)
1 15,000 15,000
2 20,000 15,000
3 25,000 15,000
4 30,000 15,000
5 35,000 15,000

a. Calculate each project's payback period
b. Calculate the net present value (NPV) for each project.
c. Calculate the internal rate of return (IRR) for each project.
d. Draw the net present value profiles for both projects on the same set of axes, and discuss any conflict in ranking that may exist between NPV and IRR.
e. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why.

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Axis Corp. is considering investment in the best of two mutually exclusive projects

Axis Corp. is considering investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $45,000 and generate cash inflows of $20,000 per year for the next 3 years. Project Thompson involves replacement of the existing system; it will cost $275,000 and generate cash inflows of $60,000 per year for 6 years. Using an 8% cost of capital, calculate each project's NPV, and make a recommendation based on your findings.

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Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects

Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of $25,000; project Helium requires an initial outlay of $35,000. Using the expected cash inflows given for each project in the following table, calculate each project's payback period. Which project meets Elysian's standards?

Expected cash inflows
Year Hydrogen Helium
1 $6000 $7000
2 6,000 7,000
3 8,000 8,000
4 4,000 5,000
5 3,500 5,000
6 2,000 4,000

Click here for the solution: Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects