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(Solution) - The State Spartan Corporation is considering two mutually exclusive projects

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The State Spartan Corporation is considering two mutually exclusive projects. The free cash flows associated with these projects are as follows:
PROJECT A PROJECT B
Initial outlay.........................-$50,000.......................-$ 50,000
Inflow year 1...........................15,625.................................0
Inflow year 2...........................15,625.................................0
Inflow year 3...........................15,625.................................0
Inflow year 4...........................15,625.................................0
Inflow year 5...........................15,625........................100,000
The required rate of return on these projects is 10 percent.
a. What is each project's payback period?
b. What is each project's NPV?
c. What is each project's IRR?
d. What has caused the ranking conflict?
e. Which project should be accepted? Why?

 







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This question was answered on: Jul 11, 2017

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