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.
The solution considers two projects and calculates NPV, IRR and payback period.