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

ID: 2740573 • Letter: C

Question

Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for AZ-Motorcars is 10 percent.

840,000

436,000

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).)

Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for AZ-Motorcars is 10 percent.

Year AZM
Mini-SUV AZF
Full-SUV 0 –$ 490,000 –$

840,000

1 328,000 358,000 2 196,000

436,000

A./

PAY-BACK PERIOD OF AZM MINI-SUV

PAYBACK PERIOD

= YEAR 1 + CUMULATIVE CASH FLOW OF YAER1 / CASH FLOW OF YEAR 2

(NEGATIVE SIGHN SHOULD BE IGNORED WHILE PUTING THE VALUES)

= 1 + $162000 / $196000

= 1 + 0.83

= 1.83 YEARS

PAY-BACK PERIOD OF AZF FULL-SUV

PAYBACK PERIOD

= YEAR 2 + CUMULATIVE CASH FLOW OF YAER 2 / CASH FLOW OF YEAR 3

(NEGATIVE SIGHN SHOULD BE IGNORED WHILE PUTING THE VALUES)

= 2 + $46000 / $252000

= 2 + 0.18

= 2.18 YEARS

B./

NPV OF AZM MINI-SUV

NPV OF AZF FULL-SUV

YEAR CASH FLOW CUMULATIVE CASH FLOW 0 -$490000 -$490000 1 $328000 -$162000 2 $196000 $34000 3 $158000 $192000

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