Selection of a project on the basis Payback and net present value
Year
|
Project A
|
Project B
|
1
|
$12,000
|
$10,000>
|
2
|
$8,000>
|
>$6,000
|
3
|
$6,000
|
$16,000
|
a) Which of the two projects should be chosen based on the payback method?
b) Which of the two projects should be chosen based on the net present value method? Assume a cost of capital of 10 percent.
c) Should a firm normally have more confidence in answer a or answer b?