What is the payback period for each project? (Do not round intermediate calculat
ID: 2774600 • 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
Per the rules, I can do first four parts only.
a-1: TO calculate PB period, we need to construct a cumulative cash flow (CCF) table:
Year
cash flow
Cash flow
CCF
CCF
A
B
A
B
0
-357,000
-46,500
-357,000
-46,500
1
38,000
23,300
-319,000
-23,200
2
58,000
21,300
-261,000
-1,900
3
58,000
18,800
-203,000
16,900
4
433,000
13,900
230,000
30,800
Payback period = last year of negative ccf + cf required in first year of positive ccf / cf
Payback period (A) = 3+(203,000/433,000)
= 3.47 years
Payback period (B) = 2+(1,900/18,800)
= 2.10 years
a-2: Since project B has lower payback period, we should choose project B.
b-1 For calculating discounted payback period, we first need to calculate pv of each cash flow then, prepare cumulative cash flow table.
Year
cash flow
Cash flow
PV factor
PV
PV
CCF
CCF
A
B
14%
A
B
A
B
0
-357,000
-46,500
1.000
-357,000
-46,500
-357,000
-46,500
1
38,000
23,300
0.877
33,333
20,439
-323,667
-26,061
2
58,000
21,300
0.769
44,629
16,390
-279,038
-9,672
3
58,000
18,800
0.675
39,148
12,689
-239,889
3,018
4
433,000
13,900
0.592
256,371
8,230
16,482
11,248
Payback period = last year of negative ccf + cf required in first year of positive ccf / cf
Payback period (A) = 3+(239,889/256371)
= 3.94 years
Payback period (B) = 2+(9,672/12,689)
= 2.76 years
b-2: Since project B has lower discounted payback period, we should choose project B.
Year
cash flow
Cash flow
CCF
CCF
A
B
A
B
0
-357,000
-46,500
-357,000
-46,500
1
38,000
23,300
-319,000
-23,200
2
58,000
21,300
-261,000
-1,900
3
58,000
18,800
-203,000
16,900
4
433,000
13,900
230,000
30,800
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