Diaz Camera Company is considering two investments, both of which cost $12,000.

Question

Diaz Camera Company is considering two investments, both of which cost  $12,000. The cash flows are as follows:

  

     

Calculate the payback period for project A and project B. (Round your answers to 2 decimal places.)

   

    

  

Calculate the net present value for project A and project B. Assume a cost of capital of 8 percent.(Round "PV Factor" to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

  

   

Diaz Camera Company is considering two investments, both of which cost  $12,000. The cash flows are as follows:

Use Appendix B. Diaz Camera Company is considering two investments, both of which cost $12,000. The cash flows are as follows: Use Appendix B. (a-1) Calculate the payback period for project A and project B. (Round your answers to 2 decimal places.) (a-2) Which of the two projects should be chosen based on the payback method? (b-1) Calculate the net present value for project A and project B. Assume a cost of capital of 8 percent.(Round "PV Factor" to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Explanation / Answer

a. payback period for project A = 2 + (12000-10000)/6000= 2.33 years

payback period for project B = 2 + (12000-8000)/11000= 2.36 years

a-2 Project A

b

net present value for project A = -12000 +5000/1.08 + 5000/1.08^2 + 6000/1.08^3 =1679

net present value for project B = -12000 +4000/1.08 + 4000/1.08^2 + 11000/1.08^3 =$3865

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