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Aurora Services is considering two projects, both with an initial outlay of $320,000. The company...

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Accounting

Aurora Services is considering two projects, both with an initial outlay of $320,000. The company requires a 10% return.

Project Red:

  • Year 1: $105,000
  • Year 2: $110,000
  • Year 3: $115,000
  • Year 4: $125,000

Project Blue:

  • Year 1: $100,000
  • Year 2: $105,000
  • Year 3: $110,000
  • Year 4: $135,000

a. Compute the payback period for each project. Based on the payback period, which project is preferred?

b. Compute the net present value (NPV) for each project. Based on NPV, which project is preferred?

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