You are asked to evaluate two projects.Project A requires an initial investment of €10000 and pays back in years 1 to 4 the following amounts €1000, €2500, €4750, €6500. The equipment requires an upgrade in year 2 costing €1500. Project B requires an initial investment of €9000 and pays back in years 1 to 4 €6000, €3000, €1000, €1000. A maintenance charge in year 3 will cost €500.
Using a discount rate of 5% calculate the NPV for each project.
What is the IRR for each project?
What is the Payback period for each project?
Which project would you recommend? Give your reasons.