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Capital Budgeting-NPV,IRR, Payback period

11. A&B Enterprises is trying to select the best investment from among four alternatives. Each alternative requires an initial outlay of $100,000. Their cash flows are as follows:

Project A
Year 1: $10,000
Year 2: $20,000
Year 3: $30,000
Year 4: $40,000
Year 5: $50,000

Project B
Year 1: $50,000
Year 2: $40,000
Year 3: $30,000
Year 4: $0
Year 5: $0

Project C
Year 1: $25,000
Year 2: $25,000
Year 3: $25,000
Year 4: $25,000
Year 5: $25,000

Project D
Year 1: $0
Year 2: $0
Year 3: $45,000
Year 4: $55,000
Year 5: $60,000

Evaluate and rank each of the four projects based on (a) payback period, (b) net present value (use a 10% discount rate), and (c) internal rate of return. You will have to use Excel or a financial calculator to determine the IRR. You are welcome to use Excel or a financial calculator to determine the NPV.

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The solution ranks 4 projects based on (a) payback period, (b) net present value (using a 10% discount rate), and (c) internal rate of return.

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