please show step by step solutions All techniques with NPV profile: Mutually exc

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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.

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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

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