Using the information provided below: Calculate the payback period of each proje

Question

Using the information provided below:

Calculate the payback period of each project.

Calculate the NPV of each project.

Calculate the IRR of each project.

Evaluate the acceptability of each project using payback, NPV and IRR, independently. Be sure to tell which project you would choose based on each calculation.

Botany Designs is looking to revamp its manufacturing facility and has two different options they can choose from. The initial investment for each option is $100,000. They have set a minimum payback requirement of 4 years. The cost of capital is going to be 11% for each project.

Cash Inflows for years 1-5 are:

Year

Project Speedy (S)

Project Quality (Q)

1

32000

22500

2

32000

22500

3

32000

22500

4

32000

22500

5

32000

22500

Year

Project Speedy (S)

Project Quality (Q)

1

32000

22500

2

32000

22500

3

32000

22500

4

32000

22500

5

32000

22500

Explanation / Answer

the npv is as follows:

one the basis of npv, project speedy should be chosen as its npv is more

---------

IRR:

on the basis of irr, project quality should be chosen as its irr is greater than the required rate of return

Year project speedy Present Value Project Quality Present Value 0 -100000 -100000 -100000 -100000 1 32000 28828.83 22500 20270.27027 2 32000 25971.92 22500 18261.50475 3 32000 23398.12 22500 16451.80608 4 32000 21079.39 22500 14821.44692 5 32000 18990.44 22500 13352.65488 npv 18268.70 npv -16842.32

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