Compare and contrast the internal rate of return approach and the net present value approach to capital rationing. Which is better? Why?

Two investments that Centennial Catering, Inc. is thinking about are mutually exclusive. The corporation wants to conduct its study using a risk-adjusted discount rate (RADR) of the CAPM variety. The managers of Centennial note that the present risk-free rate of return is 7% while estimating that the proper market rate of return should be 12%. The following table displays the cash flows related to the two projects.

$$\begin{array}{ccr} & \text { Project X } & \text { Project Y } \\ \hline \text { Initial investment }\left(C F_0\right) & \$ 70,000 & \$ 78,000 \\ \hline \text { Year }(t) & {\text { Cash inflows }\left(C F_t\right)} \\ \hline & \$ 30,000 & \$ 22,000 \\ 2 & 30,000 & 32,000 \\ 3 & 30,000 & 38,000 \\ 4 & 30,000 & 46,000 \end{array}$$

Talk about your findings and suggest the ideal project.

Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a $16 \%$ cost of capital.

$$\begin{array}{lrr} & \text{Press A}&\text{Press B}&\text{Press C}\\ \hline\\ \text{Initial investments(CF$_0$)}& \$40,000 & \$40,000 & \$40,000 \\ \hline\\ & &\text{Cash inflows(CF$_t$)} \hspace{-8mm}\\ \text{Years(t)}\\ \hline 1 & \$13,000&\$7,000&\$19,000 \\ 2 & 13,000 & 10,000 &16,000\\ 3 & 13,000 & 13,000&13,000\\ 4& 13,000 & 16,000&10,000\\ 5 & 13,000 & 19,000 &7,000\\ \end{array}$$

Determine each project's payback period. Which project is preferred according to this method?

Jordan Enterprises is considering a capital expenditure that requires an initial investment of $\$ 42,000$ and returns after-tax cash inflows of $\$ 7,000$ per year for $10$ years. The firm has a maximum acceptable payback period of $8$ years. a. Calculate the payback period for this project.

Elysian Fields, Inc., uses a maximum payback period of $6$ years and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of $\$ 25,000$; project Helium requires an initial outlay of $\$ 35,000$. Using the expected cash inflows provided for each project in the accompanying table, determine each project's payback period. Which project meets Elysian's standards?