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Stellar Corp is analyzing two new projects. The company requires a 14% return on its investments.
Project 1:
- Initial Investment: $(200,000)
- Year 1: $70,000
- Year 2: $75,000
- Year 3: $80,000
- Year 4: $90,000
Project 2:
- Initial Investment: $(220,000)
- Year 1: $65,000
- Year 2: $70,000
- Year 3: $85,000
- Year 4: $95,000
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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