All techniques, conflicting rankings. Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, each with an incremental cost of $150,000. The company's board odirectors has set a 4-year payback requirement and the company's cost of capital is 9 percent. The cash inflows associated with the two projects are as follows:
|
Year
|
Project A cash inflows (CFt)
|
Project B cash inflows (CFt)
|
|
1
|
$45,000
|
$75,000
|
|
2
|
45,000
|
60,000
|
|
3
|
45,000
|
30,000
|
|
4
|
45,000
|
30,000
|
|
5
|
45,000
|
30,000
|
|
6
|
45,000
|
30,000
|
a. Calculate the payback period for each project.
b. Calculate the NPV of each project.
c. Calculate the IRR of each project.
d. Rank the project using each of the techniques. Make and justify a recommendation.