mathal.com Finance 350 TT - Instructor: Hall Ha Nguyen 1 1/27/17 6:33 PM Homewor

Question

mathal.com Finance 350 TT - Instructor: Hall Ha Nguyen 1 1/27/17 6:33 PM Homework: Module 8: Chapter 10 Save Score: 0 of 5 pts 60f 8 (2 complete) Hw Score: 16.67%, 6.67 of 40 pts P10-21 (similar to) Question Help * All techniques, conflicting rankings Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, each with an initial investment projects are shown in the following table: EB a. Calculate the payback period for each project. Rank the projects by payback period. $110 000 The company's board of directors has set a 4-year payback requirement and has set its cost of capital at 11%, The cash n o s asso a ed min the two b. Calculate the NPV of each project. Rank the project by NPV c. Calculate the IRR of each project. Rank the project by IRR d. Make a recommendation, a. The payback period of project A is 3.14 years. (Round to two decimal places.) The payback period of project B is 1.7 years. (Round to two decimal places.) According to the payback method, which project should the firm choose? (Select the best answer below.) A. Project B O B. Project A The NPV of project A is S (Round to the nearest cent.) b. Enter your answer in the answer box and then click Check Answer Check Answer Clear All remaining

Explanation / Answer

1. Payback Period for project A

Payback period = Total initial capital investment/annual expected after tax net tax inflows

Project A= 110000/35000=3.14

Payback period for project B

year Inflows balance investment

1 75000 35000

2 50000

In year 2 $50000 cash inflows recieved but only 35000 is to be recovered investment

so 35000/50000=0.7

so total 1+0.7=1.7

So as Project B Payback period is less then then the Project A so Project B is prefered

Net Present Value of Projects

Present Value of Total inflows-Total initial investment=NPV

Project A=148068.82-110000=38068.82

Project B=158509-110000=48509

Advice = Since the present value of Project B is higher then project A then Project B should be selected

Intenal Rate of Return

The Discount rate that equates the present value of the expected cash inflows with the initial cash outflows

Project A

IRR= 11+(((148068.83-110000)/(148068.83-103299.84))*(25-11))

= 11+11.9047

=22.9047

Project B

IRR=11+(((158508.98-110000)/(158508.98-104904.778)*(35-11))

=11+21.719

=32.719

Advice = Since Project B IRR is higher then project B so Project b can be selected

Overall Project B is preferable

Project A Project B Net Inflows Disc factor Present Value of
investment Net Inflows Disc factor Present Value of
investment 35000 0.900900901 31531.53153 75000 0.901 67567.6 35000 0.811622433 28406.78516 50000 0.812 40581.1 35000 0.731191381 25591.69835 20000 0.731 14623.8 35000 0.658730974 23055.5841 20000 0.659 13174.6 35000 0.593451328 20770.79648 20000 0.593 11869 35000 0.534640836 18712.42926 20000 0.535 10692.8 Total 148068.8249 158509

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.