Consider the following cash flows of two mutually exclusive projects for Tokyo R
ID: 2761840 • Letter: C
Question
Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the discount rate for Tokyo Rubber Company is 8 percent.
What is the payback period for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
What is the NPV for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
What is the IRR for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the discount rate for Tokyo Rubber Company is 8 percent.
Year Dry Prepreg Solvent Prepreg 0 –$ 1,760,000 –$ 780,000 1 1,106,000 405,000 2 912,000 660,000 3 756,000 402,000What is the payback period for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
Payback period Dry Prepeg years Solvent Prepeg yearsWhat is the NPV for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
NPV Dry Prepeg $ Solvent Prepeg $What is the IRR for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
IRR Dry Prepeg % Solvent Prepeg %Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
Incremental IRR %Explanation / Answer
1
Calculation of payback period for Dry Prepreg:
Year
Cash Flows (CF)
Cummulative CF
0
$ (1,760,000)
$ (1,760,000)
1
$ 1,106,000
$ (654,000)
2
$ 912,000
$ 258,000
3
$ 756,000
$ 1,014,000
Cummulative CF becomes positive in year 2, hence
Payback period = 1 year + (654000 / 912000)
Payback period = 1.12 Years
2
Calculation of payback period for Solvent Prepreg:
Year
Cash Flows (CF)
Cummulative CF
0
$ (780,000)
$ (780,000)
1
$ 405,000
$ (375,000)
2
$ 660,000
$ 285,000
3
$ 402,000
$ 687,000
Cummulative CF becomes positive in year 2, hence
Payback period = 1 year + (375000 / 660000)
Payback period = 1.57 Years
3
Calculation of NPV for Dry Prepeg:
Year
Cash Flows (CF)
PVF (8%)
PV = CF*PVF
0
$ (1,760,000)
1.00000
$(1,760,000.00)
1
$ 1,106,000
0.92593
$ 1,024,074.07
2
$ 912,000
0.85734
$ 781,893.00
3
$ 756,000
0.79383
$ 600,137.17
NPV=
$ 646,104.25
4
Calculation of NPV for Solvent Prepeg:
Year
Cash Flows (CF)
PVF (8%)
PV = CF*PVF
0
$ (780,000)
1.00000
$ (780,000.00)
1
$ 405,000
0.92593
$ 375,000.00
2
$ 660,000
0.85734
$ 565,843.62
3
$ 402,000
0.79383
$ 319,120.56
NPV=
$ 479,964.18
1
Calculation of payback period for Dry Prepreg:
Year
Cash Flows (CF)
Cummulative CF
0
$ (1,760,000)
$ (1,760,000)
1
$ 1,106,000
$ (654,000)
2
$ 912,000
$ 258,000
3
$ 756,000
$ 1,014,000
Cummulative CF becomes positive in year 2, hence
Payback period = 1 year + (654000 / 912000)
Payback period = 1.12 Years
2
Calculation of payback period for Solvent Prepreg:
Year
Cash Flows (CF)
Cummulative CF
0
$ (780,000)
$ (780,000)
1
$ 405,000
$ (375,000)
2
$ 660,000
$ 285,000
3
$ 402,000
$ 687,000
Cummulative CF becomes positive in year 2, hence
Payback period = 1 year + (375000 / 660000)
Payback period = 1.57 Years
3
Calculation of NPV for Dry Prepeg:
Year
Cash Flows (CF)
PVF (8%)
PV = CF*PVF
0
$ (1,760,000)
1.00000
$(1,760,000.00)
1
$ 1,106,000
0.92593
$ 1,024,074.07
2
$ 912,000
0.85734
$ 781,893.00
3
$ 756,000
0.79383
$ 600,137.17
NPV=
$ 646,104.25
4
Calculation of NPV for Solvent Prepeg:
Year
Cash Flows (CF)
PVF (8%)
PV = CF*PVF
0
$ (780,000)
1.00000
$ (780,000.00)
1
$ 405,000
0.92593
$ 375,000.00
2
$ 660,000
0.85734
$ 565,843.62
3
$ 402,000
0.79383
$ 319,120.56
NPV=
$ 479,964.18
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