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A company is considering two alternative investment opportunities, each of which requires an initial cash outlay of $110,000. The expected net cash flows from the two projects follow:

Project A Project B

Year 1 $30,000 $44,000

Year 244,000 70,000

Year 3 70,000 30,000

Totals $144,000 $144,000

Required:

Using the incremental method, determine the payback period for project A.
Using the incremental method, determine the payback period for project B.
Use the table values below to find the net present value of the cash flows associated with project A and B, discounted at 12%

Periods present value of 1 at 12%

1 0.8929

2 0.7972

3 0.7118

4) Based on a comparison of their net present values, and assuming the same discount rate (greater than zero) is required for both projects, which project is the better investment?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9949740

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