2. Your firm is considering two projects: Project A and Project B with the following cash flows:
A YEAR B YEAR
-$75 0 -$60 0
$15 1 $20 1
$33 2 $13 2
$44 3 $15 3
$55 4 $18 4
a. Calculate the NPVs based on WACCs of 5% and 7%
b. What are the IRRs based on the WACCs?
c. Calculate the payback period and discounted payback period
d. Which projects should the firm accept if they are independent, based on the NPV, IRR, payback period, and discounted payback period methods? Assume your firm requires projects to break even in three years
This solution illustrates how to evaluate projects by computing their net present values, payback periods, and discounted payback periods, and using Excel functions to find their internal rates of return.