2.00 points Jill Harrington, a manager at Jennings Company, is considering sever
ID: 2524737 • Letter: 2
Question
2.00 points Jill Harrington, a manager at Jennings Company, is considering several potential capitall investment projects. Data on these projects follow: Initial inwestment Annual cash inflows PV of cash inlows Project X ProjectY Projoct Z S40,000 $20,000 $50,000 25,400 33,000 70,000 25,000 45,000 10,000 Required: 1. Compute the payback period for each project and rank order them based on this criterion. (Round your answers to 2 decimal places.) Project X Project Y Project Z 2. Compute the NPV of each project and rank order them based on this criterion. Rank Project X Project Y Project ZExplanation / Answer
1.Payback Period
Payback Period = Initial Investment / Annual cash flow
Project X = $40000 / $25000 = 1.6 Years
Project Y = $20000 / $10000 = 2 Years
Project Z = $50000 / $25400 = 1.97 Years
Payback Period
Rank
Project X
1.6 Years
1
Project Y
2 Years
3
Project Z
1.97 Years
2
2.Net Present Value (NPV)
NPV = Present Value of cash flow – Initial Investment
Project X = $45000 - $40000 = $5000
Project Y = $33000 - $20000 = $13000
Project Z = $70000 - $50000 = $20000
Payback Period
Rank
Project X
$5000
3
Project Y
$13000
2
Project Z
$20000
1
3.Profitability Index
Profitability Index = Present Value of cash flow / Initial Investment
Project X = $45000 / $40000 = 1.13
Project Y = $33000 / $20000 = 1.65
Project Z = $70000 / $50000 = 1.40
Payback Period
Rank
Project X
1.13
3
Project Y
1.65
1
Project Z
1.40
2
Payback Period
Rank
Project X
1.6 Years
1
Project Y
2 Years
3
Project Z
1.97 Years
2
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