KIBT Ltd is a consumer electronic company and considering to invest in either of two competing projects that will allow the company to eliminate a production bottleneck and meet the growing demand for its products. The company’s engineering department narrowed the alternatives down to two projects A and B. Working with the accounting and finance personnel, the company’s CFO developed the following estimates of the cash flows for A and B over the relevant 6-year time horizon. The firm has a 12 per cent required return and views these projects as equally risky.
| Year | Project A cash flows | Project B cash flows |
| 0 | -$660,000 | -$950,000 |
| 1 | $250,000 | $190,000 |
| 2 | 190,000 | 170,000 |
| 3 | 180,000 | 180,000 |
| 4 | 160,000 | 260,000 |
| 5 | 120,000 | 570,000 |
| 6 | 140,000 | 320,000 |
Calculate the payback period, net present value and internal rate of return of the above two
projects.
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