Question

Bagel Pantry Inc. is considering two mutually exclusive projects with widely differing lives. The company's cost of capital is 12%. The project cash flows are summarized as follows:

Project A Project B

C_{0 $(25,000) $(23,000)}

C_{1 14,742 6,641}

C_{2 14,742 6,641}

C_{3 14,742   6,641}

C_{4 6,641}

C_{5 6,641}

C_{6 6,641}

C_{7 6,641}

C_{8 6,641}

C_{9 6,641}

a. Compare the projects using payback.

b. Compare the projects using NPV.

c. Compare the projects using IRR.

d.Compare the projects using the replacement chain approach.

e. Compare the projects using the EAA method.

f. Choose a project and justify your choice.

Answer 1

All the Techniques used here are part of capital budgeting and on the basis of the result from all the Technique project A is better than Project B.