What is the payback period for each project? (Do not round intermediate calculat
ID: 2772772 • Letter: W
Question
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.)
What is the discounted payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
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.)
What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)
Consider the following two mutually exclusive projects:
Explanation / Answer
a-1) 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.) Ans) Payback period for each project is Target inflow i.e investment -Cumulative cash inflow till year 3 Payback Period for project A:- 3 Year + --------------------------------------------------------------------------------------- Cumulative Cash inflow till year 4 -Cumulative Cash inflow till year 3 355000-160000 ----------------- 595000-160000 195000/435000 0.448275862 3 year + 0.4483 3.4483 year or 3 year and 5.3796 months Payback Period for project B:- Target inflow i.e investment -Cumulative cash inflow till year 2 2 Year + --------------------------------------------------------------------------------------- Cumulative Cash inflow till year 3 -Cumulative Cash inflow till year 2 (47500-45000)/(64000-45000) 0.131578947 2.1316 year or 2 year and 1.579 years a-2 If you apply the payback criterion, which investment will you choose? Ans) Project B is giving quick return compared to project A b) What is the discounted payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) ans) Target inflow i.e investment -Cumulative cash inflow till year 3 Payback Period for project A:- 3 Year + --------------------------------------------------------------------------------------- Cumulative Cash inflow till year 4 -Cumulative Cash inflow till year 3 47500-36692/49184-36692 355000-119600/368333-119600 235400/248733 0.94640 Payback period is 3.9464 years or 3 year and 11.35675 months Payback Period for project B:- Target inflow i.e investment -Cumulative cash inflow till year 2 2 Year + --------------------------------------------------------------------------------------- Cumulative Cash inflow till year 3 -Cumulative Cash inflow till year 2 3 year and 11.3567 months 2 year and 10.38232 months 47500-36692/49184-36692 0.865193724 Payback period for Project B is 2.865 years or 2 year and 10.38232 months b-2 If you apply the discounted payback criterion, which investment will you choose? Ans) Project B we can choose as it is giving quick return then project A C-1) What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Year Project A Cum. Cash flow Disc Factor @ 15% DCF Cum. Disc Cash flow Disc factory @50@ DCF Project B Cum. Cash flow Disc Factor @ 15% DCF Cum. Disc Cash flow Disc factory @50@ DCF 0 $ (355,000) $ (355,000) 1 $ (355,000) $ (355,000) $ (355,000) $ (47,500) $ (47,500) 1 $(47,500) $ (47,500) 1 $ (47,500) 1 $ 40,000 $ 40,000 0.8696 $ 34,784 $ 34,784 0.667 $ 26,667 $ 23,500 $ 23,500 0.8696 $ 20,436 $ 20,436 0.667 $ 15,667 2 $ 60,000 $ 100,000 0.7561 $ 45,366 $ 80,150 0.444 $ 26,667 $ 21,500 $ 45,000 0.7561 $ 16,256 $ 36,692 0.444 $ 9,556 3 $ 60,000 $ 160,000 0.6575 $ 39,450 $ 119,600 0.296 $ 17,778 $ 19,000 $ 64,000 0.6575 $ 12,493 $ 49,184 0.296 $ 5,630 4 $ 435,000 $ 595,000 0.5718 $ 248,733 $ 368,333 0.198 $ 85,926 $ 14,100 $ 78,100 0.5718 $ 8,062 $ 57,247 0.198 $ 2,785 $ 240,000 $ 13,333 $ (197,963) $ 30,600 $ 9,747 $ (13,863) NPV for the project A $ 13,333 NPV for the project B $ 9,747 Profitability index = PV of operating inflows/PV of investment Costs Project A 368333/355000 1.04 Project B 57247/47500 1.21 Project A IRR 197963/211296*35 Different 33% IRR 17.00% Project B = 9747/23610*35% or 14% (13863/23610)*35% 15+14% 21% IRR 29% 29 C-2 If you apply the NPV criterion, which investment will you choose? Project A NPV is higher then project B then we choose project A d-1 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.) Ans) 240.44 48.088 Porject A 17.00% 12.022 Porject B 29.00% d-2 If you apply the IRR criterion, which investment will you choose? Project A should select e. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Project A 1.04 Project B 1.21 e-2 If you apply the profitability index criterion, which investment will you choose? Project B should be select F Based on your answers in (a) through (e), which project will you finally choose? Ans) Profitalbility Project A 1.04 Project B 1.21 Pack Back period
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