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Payback and net present value

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Company considers two investments both cost 10,000. The cash flows are as follows:

Year A Year B
12,000 10,000
8,000 6,000
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?

C. Should the firm normally have more confidence in answer a or b?

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The solution answers the question below and goes into quite a bit of detail regarding payback and net present value. The answer is ideal for students looking for a detailed analysis of the question asked below. An excellent response to the question being asked.

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A. Payback for Project A is less than payback for Project B. Thus Project A should be chosen.

B. The discount rate is not given in ...

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