Two projects C and D each will cost 100 MM to launch and will have the following

Question

Two projects C and D each will cost 100 MM to launch and will have the following cash flows (cash flows in millions of USD) If the cut off for payback period is 2.5 years, which of the two projects should be undertaken? if discount rate is 15% which of the two projects should be selected? At what discount rate both projects will have the same NPV and what is that NPV? For what range of discount rates you would choose project C over D and for what lange of discount rales you would choose Project D over C

Explanation / Answer

a) at 2.5 years payback period project D should be undertaken because at 2.5 years the payback amount of D is sufficient to meat the initial outlay

b) at 15 % discount project should be undertaken NPV at 15 % discount rate =$ 687640.48

c) NO single rate will equate the NPV s of both the projects ,because of the time value of money

d) at 9% discount rate project C can be choosen because the NPV of project C at discount rate of 9% id $ 2,192,868.54 and Npv of project D is $ 1,826,786.27

and at 13% project D can be choosen over project C

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