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Hercules Inc. is considering two projects with different cash flow profiles. The company's required rate of return is 16%.
Project Delta:
- Initial Investment: $(230,000)
- Year 1: $95,000
- Year 2: $100,000
- Year 3: $105,000
- Year 4: $110,000
Project Gamma:
- Initial Investment: $(240,000)
- Year 1: $90,000
- Year 2: $95,000
- Year 3: $100,000
- Year 4: $120,000
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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