question 1
a: (i) Under payback rule:

 Project A’s payback period:

 The sum of first four year cash flow = 120,000+120,000+120,000+290,000=650,000

 15,000/290,000 = 0.05years

 The payback period = 4+0.05=4.05years

 Project B’s payback period:

 The sum of first two year cash flow =

 240,000+240,000 = 480,000

 185,000/240,000 = 0.77years

 The payback period = 2.77years

 The project B’s payback period is accepted because 2.77 years is less than the 4 years. But project A is not accepted which payback period is 4.05 years that is more than 4 years

 (ii) Under discounted payback rule:

   Project A’s payback period:

   The sum of first four year cash flow =

   120,000/(1+9%)+120,000/(1+9%)^2+120,000/(1+9%)^3+120,000/(1+9%)^4

   =509,198.67

   (665,000-509,198.67)/188480.10 = 0.83

   The payback period = 4.83 years

   Projeect B’s payback period:

   The sum of first three year cash flow =              

   240,000/(1+7%)+240,000/(1+7%)^2+240,000/(1+7%)^3

   =629,835.85

   (665,000-629,835.85)/82,392.68 = 0.43

   The payback period = 3.43years

Year	Project A		Porject B
0	-665000	9%	-665000	7%
1	120000	110091.74	240000	224299.07
		-554908.26		-440700.93
2	120000	101001.60	240000	209625.29
		-453906.66		-231075.64
3	120000	92662.02	240000	195911.49
		-361244.64		-35164.15
4	290000	205443.31	108000	82392.68
		-155801.33
5	290000	188480.10	108000
		0.83		0.43
		4.83years		3.43years

 
The project B’s payback period is accepted because 3.43 years is less than the 4 years. But project A is not accepted which payback period is 4.83 years that is more than 4 years

 B(i)

 NPV of Project A = 665000-(120000/1.09)+(120000/1.09^²)+(120000/1.09^³)+(290000/1.09^⁴)+(290000/1.09^⁵)+(290000/1.09^⁶)

 =205,596.30

 NPV of Project B = 665000-(240000/1.07)+(240000/1.07^²)+(240000/1.07^³)+(108000/1.07^⁴)+(108000/1.07^⁵)+(108000/1.07^⁶)

 =196,196

 IRR of Project A =

 NPV=0=-665000+(120000/(1+IRR))+(120000/(1+IRR)^²)+(120000/(1+IRR)^³)+(290000/(1+IRR)^⁴)+(290000/(1+IRR)^⁵)+(290000/(1+IRR)^⁶)

 IRR = 17%

 IRR of Project B =