Consider the following cash flows of two mutually exclusive projects for AZ-Moto
ID: 2740077 • Letter: C
Question
Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for AZ-Motorcars is 9 percent.
Year AZM Mini-SUV AZF Full-SUV
0 –$ 535,000 –$ 885,000
1 337,000 367,000
2 214,000 454,000
3 167,000 307,000
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
a) Pay back Period AZM mini SUV Year Cash Flows Cumulative Cashflows 0 -$535,000 -$535,000 1 $337,000 -$198,000 2 $214,000 $16,000 3 $167,000 Payback period = 1year + $198,000/$214,000 1.93 years AZF full SUV Year Cash Flows Cumulative Cashflows 0 -$885,000 -$885,000 1 $367,000 -$518,000 2 $454,000 -$64,000 3 $307,000 $243,000 Payback period = 2year + $64,000/$307,000 2.21 years Payback period AZM Mini-SUV _______years 1.93 years AZF Full-SUV ________years 2.21 years b) NPV Year AZM mini SUV AZF Full-SUV PV @9% Present Value AZM mini SUV = Cash flow x PV factor Present Value AZF Full SUV = cash flow x pv factor 0 -$535,000 -$885,000 1.0000 -$535,000 -$885,000 1 $337,000 $367,000 0.9174 $309,174.31 $336,697.25 2 $214,000 $454,000 0.8417 $180,119.52 $382,122.72 3 $167,000 $307,000 0.7722 $128,954.64 $237,060.33 NPV $83,248.47 $70,880.29 IRR 18.79% 13.55% NPV AZM Mini-SUV $ $83,248.47 AZF Full-SUV $ $70,880.29 c) IRR AZM Mini-SUV ____% 18.79% AZF Full-SUV _____% 13.55% IRR calculated using IRR function in excel.
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