Use the cash flows from the following two projects to answer the question. The f
ID: 2741460 • Letter: U
Question
Use the cash flows from the following two projects to answer the question. The firms required rate of return is 11%. Make sure to show all your computations.
Year
Project A
Project B
0
-$200,000
-$200,000
1
$80,000
$100,000
2
$80,000
$100,000
3
$80,000
$100,000
4
$80,000
If your firm’s cutoff recovery period criterion is 2.40 years, which of these two projects would you accept:
a) using the payback period criterion?
b) using the discounted payback period criterion?
Year
Project A
Project B
0
-$200,000
-$200,000
1
$80,000
$100,000
2
$80,000
$100,000
3
$80,000
$100,000
4
$80,000
Explanation / Answer
a)
As per paybach criteria Project B should be selected.
b)
Discounted Payback Period =
As per discounted payback period criteria Project B should be selected.
Project A Year' Cash flows Cummulative CF 1 80000 80000.000 2 80000 160000.000 3 80000 240000.000 4 80000 320000.000 Payback Period = 2year+(200000-160000)/80000 2.500Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.