What is the payback period for each project? (Round your answers to 2 decimal pl

Question

  

What is the payback period for each project? (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 final answers to 2 decimal places. (e.g., 32.16))

  

  

  

What is the NPV for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

  

  

  

What is the IRR for each project? (Round your answers to 2 decimal places. (e.g., 32.16))

  

  

  

What is the profitability index for each project? (Do not round intermediate calculations and round your final answers to 3 decimal places. (e.g., 32.161))

  

  

rev: 10_17_2014_QC_5

Whichever project you choose, if any, you require a 14 percent return on your investment. Consider the following two mutually exclusive projects Cash Flow Year Cash Flow (A) -$351,000 $49,500 23,900 21,900 19,400 14,500 44,000 64,000 64,000 439,000 4

Explanation / Answer

A-1 Project A Project B

year CF Cumulativ CF   year CF Cumulativ CF

1 44000 44000 1 23900 23900

2 64000 108000 2 21900 45800

3 64000 172000 3 19400 65200

4 439000 611000 4 14500 79700

payback period = 3year + (351000 - 172000) / 439000 = 2year + (49500-45800) /19400

= 3 + .41 = 2 + .19

= 3.41 year = 2.19

a-2 project B will be more suitable to investment

B-1)

Project A Project B

year CF PVF(14%,n) DCF CDCF year CF PVF(14%,n) DCF CDCF

1 44000 .877 3858.8 3858.8 1 23900 .877 20960.3 20960.3

2 64000 .769 49216 53074.8 2 21900 .769 16841.1 37801.4   

3 64000 .675 43200 96274.8 3 19400 0.675 13095 50896.4

4 439000 0.592    259888 356162.8    4 14500 0.592 8584    59480.4

here CF- cash flow , DCF - dicounted cash flow ,and CDCF - Cumulative discounted cash flow

Dicounted payback period of Project A= 3 +( cost -PV of cash inlfow)/Pv of cash inlow = 3 + (351000 - 96274.8)/ 259888   

= 3+ .98

   = 3.98 year

Dicounted payback period of Project B = 2 + (49500 - 37801.4) / 13095

= 2 + 0.89

= 2.89 year

B-2) Project B is more better then Project A

c-1)

Project A Project B

year CF PVF(14%,n)    NPV year CF PVF(14%,n) NPV

1 44000 .877 3858.8 1 23900 .877 20960.3   

2 64000 .769 49216 2 21900 .769 16841.1

3 64000 .675 43200 3 19400 0.675 13095

4 439000 0.592 259888 4 14500 0.592 8584

NPV of Project A= 351000 - 356162.8 = 49500 - 59480.4

= (5162.8)   = (9980.4)

c-2) Invertmnet in project A is suitable ,because it has low loss as compared to Project B

E-1) Profitability index

Project A= PV of cash inflow/ PV of cash outflow Project B= PV of cash inflow/ PV of cash outflow

= 356162.8 / 351000 = 59480.4 / 49500

=1.01 = 1.20

E-2 ) Project B has high profitability index ,so Project B is more Profitable. it is more suitable

F)   

   Payback period - project B

Discounted payback - Project B

  NPV - Project A

Profitability Index - Project B

So, I will choose Project B for the investment purpose

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