please show step by step solutions All techniques with NPV p

please show step by step solutions

All techniques with NPV profile: 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. 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 P10-25 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.

Solution

Ans(a)

Ans (b)

Answer (c)

Answer(e)

Here the PRoject A is better as per the View of NPV and IRR but the Project B is better As per the view of PBP

Because IRR is lower the better , NPV is higher the better and PBP is lower the better

	Project A
Year	Cash Flow
0	-80000
Year	Cash Flow	CF
1	15000	15000
2	20000	35000
3	25000	60000
4	30000	90000
5	35000	125000
Now PBP =	3 + (80000-60000)/30000	=	3.67	Years
	Project B
Year	Cash Flow
0	-50000
Year	Cash Flow	CF
1	15000	15000
2	15000	30000
3	15000	45000
4	15000	60000
5	15000	75000
Now PBP =	3 + (50000-45000)/15000	=	3.33	Years