Nicholson Roofing Materials Inc is considering two mutually exclusive projects, each with an initial investment of $180,000. The company's board of directors has a set a 4 year payback requirement and has set its cost of capital at 10%. The cash ainflows associated withthe two projects are shown in the following table.
a: calculate the payback period for each project. Rank the projects by payback period.
b: calculate the NPV of each project. Rank the project by NPV.
c: calculate the IRR of each project. Rank the project by IRR.
d: make an justify a recommendation.
TABLE
Cash inflows (CFt)
Year Project A Project B
1 60,000 85,000
2 60,000 60,000
3 60,000 50,000
4 60,000 50,000
5 60,000 50,000
6 60,000 50,000