Question

MY QUESTION IS POSTED BELOW.

All​ techniques, conflicting rankings: Nicholson Roofing​ Materials, Inc., is considering two mutually exclusive​ projects, each with an initial investment of ​$120,000. The​ company's board of directors has set a​ 4-year payback requirement and has set its cost of capital at 11​%. The cash inflows associated with the two projects are shown in the following​ table: attached....

a. Calculate the payback period for each project. Rank the projects by payback period.

b.  Calculate the NPV of each project. Rank the project by NPV.

c.  Calculate the IRR of each project. Rank the project by IRR.

d.  Make a recommendation.

BELOW THE TABLE I WILL ATTACH THE SAME QUESTION WITH THE CORRECT ANSWERS WHICH I GOT WRONG> Maybe this will help you in seeing what I need for understanding this question.

Cash Inflows (CF)

Year Project A Project B

1 $40,000   $75,000
2 $40,000   $50,000
3 $40,000   $20,000
4 $40,000   $20,000
5 $40,000   $20,000
6 $40,000   $20,000

Below is the last question I got wrong, with the correct answers to all ABCD

************ All​ techniques, conflicting rankings  Nicholson Roofing​ Materials, Inc., is considering two mutually exclusive​ projects, each with an initial investment of ​$150 comma 000. The​ company's board of directors has set a​ 4-year payback requirement and has set its cost of capital at 8​%. The cash inflows associated with the two projects are shown in the following​ table: LOADING....

a. Calculate the payback period for each project. Rank the projects by payback period.

b.  Calculate the NPV of each project. Rank the project by NPV.

c.  Calculate the IRR of each project. Rank the project by IRR.

d.  Make a recommendation.

a.  The payback period of project A is 0 3.33 years.  ​(Round to two decimal​ places.) The payback period of project

B is 0 1.93 years.  ​(Round to two decimal​ places.)

According to the payback​ method, which project should the firm​ choose?  ​(Select the best answer​ below.)

A. Project Upper B Your answer is correct. B. Project Upper A

b.  The NPV of project A is ​$ l 58,029.58. ​(Round to the nearest​ cent.)

The NPV of project B is ​$ 0 45,509.72. ​(Round to the nearest​ cent.) According to the NPV​ method, which project should the firm​ choose?  ​(Select the best answer​ below.)

A. Project Upper A Your answer is correct.B. Project Upper B

c.  The IRR of project A is 0 19.91​%. ​(Round to two decimal​ places.)

The IRR of project B is 0 22.08​%. ​(Round to two decimal​ places.)

According to the IRR​ method, which project should the firm​ choose?  ​(Select the best answer​ below.)

A. Project Upper B This is the correct answer.B. Project Upper A Your answer is not correct.

d. Which project will you​ recommend?  ​(Select the best answer​ below.) Project Upper A Your answer is correct. Project Upper B

Answer 1

1.a.Project A

Payback period= full years until recovery + unrecovered cost at the start of the year/cash flow during the year

= $40,000 + $40,000 + $40,000

= $120,000.

= 3 years.

Project B

Payback period= full years until recovery + unrecovered cost at the start of the year/cash flow during the year

= 1 year + ($120,000 - $75,000)/ $50,000

= 1 year + $45,000/ $50,000

= 1 year + 0.90

= 1.90 years.

Ranking the projects using Payback period:

1.Project B

2.Project A

Project A

Net present value can be solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$120,000. Indicate the initial cash flow by a negative sign since it is a cash outflow.  
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the cost of capital of 11%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.  

Net present value at 11% cost of capital is $49,221.51.

Project B

Net present value can be solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$120,000. Indicate the initial cash flow by a negative sign since it is a cash outflow.  
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the cost of capital of 11%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.  

Net present value at 11% cost of capital is $38,508.98.

Ranking the projects using NPV:

1.Project A

2.Project B

b.Project A

Internal rate of return can be calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$120,000. The initial cash flow is indicated by a negative sign since it is a cash outflow.  
• Cash flow for each of the fifteen years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is 24.29%.

Project B

Internal rate of return can be calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$120,000. The initial cash flow is indicated by a negative sign since it is a cash outflow.  
• Cash flow for each of the fifteen years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is 26.13%.

c.I will recommend Project A since it has the highest net present value.

2.a.According to the payback method decision rule, I will choose Project A since it has the lowest payback method.

2.b.According to the net present value method decision rule, I will choose Project A since it has the highest net present value.

2.c.According to the internal rate of return method decision rule, I will choose Project B since it has the highest internal rate of return.

2.d. I will recommend Project A since it has the highest net present value.