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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