A firm with a 14% WACC is evaluating two projects for this year\'s capital budge

Question

A firm with a 14% WACC is evaluating two projects for this year's capital budget. After tax cash flows, including depreciation, are as follows: Calculate NPV for each project. Round your answers to the nearest cent. Calculate 1RR for each project. Round your answers to two decimal places. Calculate MIRR for each project. Round your answers to two decimal places. Calculate payback for each project. Round your answers to two decimal places Calculate discounted payback for each poject. Round your answers to two decimal places. Assuming the projects are Independent, which one or ones would you recommend

Explanation / Answer

Answer:

Payback period:

Project A:

Payback period=3 years

Project B:

Payback period=3 years+2400/11200=3.214 years

Discounted payback period:

Payback period=4 years+348/2368

=4.15 years

PRoject B:

Payback period:

=4 years+3374.4/5812.8

=4.581 years

Answer:B Project b because its npv is greater than project A.

Project A Year Cash Flow P.V.F (14%) PV ($) 0 -12000 1 -12000 1 4000 0.877 3508 2 4000 0.769 3076 3 4000 0.675 2700 4 4000 0.592 2368 5 4000 0.519 2076 NPV 1728 IRR 20%

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