11. You are considering the following two mutually exclusive projects. The requi

Question

11. You are considering the following two mutually exclusive projects. The required rate of return is 14.6 percent for project A and 13.8 percent for project B. Which project should you accept and Project A 50,000 24,800 36,200 21,000 Year Project B 50,000 41,000 20,000 10,000 A. project A; because it has the higher required rate of return B. project A; because its NPV is about $4,900 more than the NPV of project B C. project B; because it has the largest total cash inflow D. project B; because it has a shorter payback period E. project B; because it has the lower required rate of return 12. What is the NPV of Project A from question 15? A. S39,000 B. $69,000 C.S56,285.87 $30,000 None of the above E. 13. An investment project provides cash flows of $900 per year for 10 years. Assume the required rate of return is 10% for this level of risk. If the initial cost is $8,000, what is the payback period? A.3.36 years B. 5.28 years C. 6.72 years D. 8.88 years E.Never 14. Which of the following represents a use of cash? (Choose all that are correct) Decrease in inventory II. Increase in accounts receivable II.Decrease in cash IV. Decrease in accounts payable

Explanation / Answer

Answer = 11) Calculation of the Present Value of the Prpoject A Years   Cash Flow PVF @14.6% Present Value 0 $                  -50,000                         1.0000                 -50,000.00 1 $                    24,800                         0.8726                   21,640.49 2 $                    36,200                         0.7614                   27,563.82 3 $                    21,000                         0.6644                   13,952.93 $                    13,157 Calculation of the Present Value of the Prpoject B Years   Cash Flow PVF @13.8% Present Value 0 $                  -50,000                         1.0000                 -50,000.00 1 $                    41,000                         0.8787                   36,028.12 2 $                    20,000                         0.7722                   15,443.49 3 $                    10,000                         0.6785                     6,785.36 $                       8,257 Difference in NPV = $                       4,900 Answer = Option B = Project A ; Because its NPV is about $ 4,900 more than NPV of Project B Question = 12) Answer = Option E = None of the Above Question = 13) Years Cash Flow Cumulative Balance 0 -8000 -8000 1 900 -7100 2 900 -6200 3 900 -5300 4 900 -4400 5 900 -3500 6 900 -2600 7 900 -1700 8 900 -800 9 900 100 10 900 1000 In the 9thyear we recover our all money , but full 9th year is not required for this so we can caluclate the exact period of payback Period required In the 9th years = Payback Period = 8 Years + 800 "/" By 900 Payback Period = 8 Years +                           0.889 Payback Period = 8.88 Years Answer = Option D = 8.88 Years Question = 14) Answer = Correct Options are = Option III = Decrease in Cash Option IV = Decrease in accounts payable

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