GIVEN: Two Investment proposals

INVESTMENT A                             INVESTMENTB

Initial Investment

$500,000                                          $500,000

Cash Flows:         

1.0           $200,000                               $300,000

2.0           $100,000                               $100,000

3.0           $100,000                               $100,000

4.0           $200,000                               $100,000

5.0             $76,407                               $110,833

1. What is the ‘Payback’ for each project?

2. Under 'Payback',Which project is superior?

3. Give an advantage/disadvantage associated with the ‘Payback’ method.

4. What is the ‘IRR’ for each project?

5. IF WACC = 12%, evaluate both proposals.

6. Give advantage/disadvantage associated with the ‘IRR’ method.