# Computing The NPV, IRR And Discounted Payback Period

? Two projects being considered are mutually exclusive and have the following projected cash flows:

Project A Project B

Year Cash Flow Cash Flow

0 -$50,000 -$50,000

1 15,625 0

2 15,625 0

3 15,625 0

4 15,625 0

5 15,625 99,500

If the required rate of return on these projects is 10 percent, which would be chosen and why?

? Davis Corporation is faced with two independent investment opportunities. The corporation has an investment policy that requires acceptable projects to recover all costs within 3 years. The corporation uses the discounted payback method to assess potential projects and utilizes a discount rate of 10 percent. The cash flows for the two projects are:

Project A Project B

Year Cash Flow Cash Flow

0 -$100,000 -$80,000

1 40,000 50,000

2 40,000 20,000

3 40,000 30,000

4 30,000 0

In which investment project(s) should the company invest?

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#### Solution Summary

This solution illustrates how to compute the net present value, internal rate of return and discounted payback period of mutually exclusive projects.