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Question

Most clear explanation on how to solve these will be awarded the points. Thanks for your help!

Consider the following two mutually exclusive projects: Whichever project you choose, if any, you re quire a 6 percent return on your investment. What is the paybackperiod for Project A? What is the payback period for Project B? What is the discounted payback period for Project A? What is the discounted payback period for Project B? What is the NPV for Project A? What is the NPV for Project B?. What is the IRR for Project A? What is the IRR for Project B? What is the profitability index for Project A? (j) What is the profitability index for Project B? Mahjong, Inc., has identified the following two mutually exclusive project What is the IRR for Project A? What is the IRR for Project B? If the required return is 11 percent, what is the NPV for Project A? If he required return is 11 percent, what is the NPV for Project B? At what discount rate would the company be indifferent between these two projects? A project has the following cash flows: What is the IRR for this project? What is the NPV of this project, if the required return is 11.5 percent? NPV at 0 percent? NPV at 23 percent?

Explanation / Answer

Discounting rate Discounting rate Year 6.00 Cash flow Dsic. Cash flow Year 6.00 Cash flow Dsic. Cash flow 0 1.00 -280012.00 -280012.00 0 1.00 -15021.00 -15021.00 1 0.94 28700.00 27075.47 28700.00 27075.47 1 0.94 4196.00 3958.49 4196.00 3958.49 2 0.89 56000.00 49839.80 84700.00 76915.27 2 0.89 8926.00 7944.11 13122.00 11902.60 3 0.84 52000.00 43660.20 136700.00 120575.48 3 0.84 13741.00 11537.21 26863.00 23439.81 4 0.79 388000.00 307332.34 524700.00 427907.82 4 0.79 8459.00 6700.32 35322.00 30140.13 147895.82 15119.13 Answer to a) Answer to b) payback period for project a) payback period for project a) =524700-280012 = 244688 =26863-15021 = 11842 cash to be generated in Year 4 = 388000 - 244688 = 143312 cash to be generated in Year 3 = 13741 - 11842 = 1899 Time required to generate = 143312 / 388000 = 0.37 Time required to generate = 1899 / 13741 = 0.14 Payback period = year 1 + 2 + 3 + 0.37 = 3.37 years Payback period = year 1 + 2 + 0.14 = 2.14 years Answer to c) Answer to d) Discounted payback period for project a) Discounted payback period for project a) =427907.82-280012 = 147895.82 =23439.81-15021 = 8418.81 cash to be generated in Year 4 = 388000 - 147895.82 = 159436.52 cash to be generated in Year 3 = 11537.21 - 8418.81 = 3118.4 Time required to generate = 159436.52 / 388000 = 0.52 Time required to generate = 3118.4 / 11537.21 = 0.27 Payback period = year 1 + 2 + 3 + 0.52 = 3.52 years Payback period = year 1 + 2 + 0.27 = 2.27 years Answer to e) Answer to f) NPV of project a) - 147892.82 NPV of project b) - 15119.13 Answer to g) Answer to h) IRR of project A) 20% IRR of project A) 39% give formula as IRR(RANGE OF CASH FLOWS) Answer to i) Answer to j) Profitability index 1.5281767 Profitability index 2.006532698 = sum of discounted inflows / intial outflow = sum of discounted inflows / intial outflow Answer to 2) Discounting rate Discounting rate Year 11 Cash flow Dsic. Cash flow Year 11.00 Cash flow Dsic. Cash flow 0 1.00 -37300.00 -37300.00 0 1.00 -37300.00 -37300.00 1 0.90 19660.00 17711.71 1 0.90 7180.00 6468.47 2 0.81 15170.00 12312.31 2 0.81 13680.00 11102.99 3 0.73 12660.00 9256.88 3 0.73 20160.00 14740.82 4 0.66 9660.00 6363.34 4 0.66 24160.00 15914.94 8344.25 10927.22 Answer to a) Answer to b) IRR 23% IRR 22% Answer to C) Answer to D) NPV 8344.25 NPV 10927.22 Answer to E) AT 19.58 % both projects will be indifferent at crossover rate the bote projects will have same NPV is calculated as follows differential cash flows Year Cash flow 0 0.00 1 12480.00 2 1490.00 3 -7500.00 4 -14500.00 IRR 19.58% Answer to 3) Discounting rate Year 11.5 Cash flow Dsic. Cash flow 0 1.00 64100.00 64100.00 1 0.90 -30100.00 -26995.52 2 0.80 -48100.00 -38689.70 -14100.00 -1585.21 answer to a) IRR 13.23% answer to b) NPV AT 11.5 % -1585.21 answer to C) NPV AT 0 % -14100.00 answer to D) NPV AT 23 % 7835.21 Year 23 Cash flow Dsic. Cash flow 0 1.00 64100.00 64100.00 1 0.81 -30100.00 -24471.54 2 0.66 -48100.00 -31793.24 7835.21

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