Can someone help provide the steps and solution to this problem.
X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash flows are as follows:
|
Year
|
Project A
|
Project B
|
|
1...................
|
$12,000
|
$10,000
|
|
2...................
|
8,000
|
6,000
|
|
3...................
|
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? Assume a cost of capital of 10 percent.
c. Should a firm normally have more confidence in answer a or answer b.