The State Spartan Corporation is considering two mutually exclusive projects. The free cash flows associated with these projects are shown in the pop up window: The required rate of return on these project is 9 Percent.
Project A Project
Intial outlay -$30,000 -$30,000
inflow year 1 11,625 0
inflow year 2 11625 0
inflow year 3 11625 0
inflow year 4 11625 0
inflow year 5 11625 80,000
A) what is the payback period of Project A?
___ Years ( Round to two decimal places)
What is the payback period of Project B?
____ Years ( Round to two decimal places)
b) What is the NPV of project A?
$______ ( Round to the nearest cent)
What is the NPV of project B?
$_______ ( Round of the near cent)
c) What is the IRR of project a?
___% ( Round to two decimal place)
what is the IRR of project B?
____% (Round to two decimal place)
d) What has caused the ranking conflict?
A) the two projects are independent
B) the projects evaluated have the same initial cash outlay
C) The NPV and IRR decision criteria have different reinvestment assumptions
D) The free Cash flows generate by the projects are different
e) Which project should be accepted? Why
A) Project B should be chosen because it has higher NPV. The NPV criterion is preferred because it makes the most acceptable reinvestment assumption from the wealth-maximizing firm
B) Project A should be chosen because it has a lower payback period. The payback period is preferred because it can be easily computed.
C) Neither project A nor B should be chosen because ranking conflict exists among different decision criteria. Different decision criteria should yield the same result
D) Project A should be chosen because it has higher IRR. The IRR criterion is preferred because it makes the most acceptable reinvestment assumption for the wealth- maximizing fir.
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