Consider the following cash flows of two mutually exclusive projects for AZ-Moto

Question

Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for AZ-Motorcars is 11 percent.

Year AZM Mini-SUV AZF Full-SUV
0 –$ 495,000 –$ 845,000
1 329,000 359,000
2 198,000 438,000
3 159,000 299,000

a. What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places (e.g., 32.16).)

Payback period
AZM Mini-SUV ______ years
AZF Full-SUV ______ years

b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places (e.g., 32.16).)

NPV
AZM Mini-SUV $ ______
AZF Full-SUV $ _______

c. What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).)
IRR
AZM Mini-SUV _____ %
AZF Full-SUV _____ %

Explanation / Answer

Year Cash flows Cummulative CF 1 329000 329000 2 198000 527000 3 159000 686000 Payback Period = 1 year + (495000-329000)/198000 1.84 Year Cash flows 1 359000 359000 2 438000 797000 3 299000 1096000 Payback Period = 2 year + (845000-797000)/299000 2.16 Year Cash flows    PVF @ 11%    PV 0 -495000 1 -495000 1 329000 0.901 296396 2 198000 0.812 160701 3 159000 0.731 116259 NPV 78357 Year Cash flows PVF @ 11% PV 0 -845000 1 -845000 1 359000 0.901 323423 2 438000 0.812 355491 3 299000 0.731 218626 NPV 52540 Year    Cash flows 0 -495000 1 329000 2 198000 3 159000 IRR 21.28% Year Cash flows 0 -845000 1 359000 2 438000 3 299000 IRR 14.63%

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