RRR = 11%
YearPROJECT APROJECT B11%
Required rate of return on these projects is 11 percent
a.What is each project’s payback period?
YearProject AProject BPresent Value (PV) @ 11%Project AProject B 0-100,000-100,0001-100000-100,000
Project a 100000/32,000=3.125 years
Project b 100,000/200,000=0.5 There was no cash flow for the first 4 years 4+0.5=4.5 years Project A’s payback period is 3.125 years whereas Project B is 4.5 years. b.What is each project’s net present value?
The NPV for Project A is $18,269, whereas the NPV for Project B is $18,690 c.What is each projects internal rate of return?
Project A 100,000 +
IRR = 18.03%
Project B – 100,000 + 200,000
IRR = 14.87%
d.What has caused the ranking conflict?
The ranging conflict comes from the timeline of the two projects. Over the course of five years project B will make more money than project A. However, project A will begin seeing payback on the investment much faster than project B. Allowing the organization
to begin seeing a return on their money sooner allows the organization to invest in other