(the cost of capital (discount rate) of 10%.) Using the following table I need h

Question

(the cost of capital (discount rate) of 10%.)

Using the following table I need help with finding out

What the payback period of each project is, also what the NPV of project M is, and is project M’s IRR higher than, lower than, or equal to 10%?

Then Using the payback period rule, acceptable project at the payback period of 2 years is...

And using the NPV rule, which is the acceptable project(s)? Using the NPV rule, if the two projects are mutually exclusive, one would choose...

Year Cash Flow Project M Project N 0 Initial Investment $20,000 $18,000 1 Income $10,000 $11,000 2 Income $10,000 $6,000 3 Income $10,000 $20,000

Explanation / Answer

Project M

PayBack Period = 1+(10000/10000)= 2 years

IRR = 23.38%

Project M's IRR is more than 10%

Project N

Payback Period= 2+(1000/20000) = 2.05 Years

IRR = 40.82%

Acceptable project at the payback period of 2 years is Project M

NPV of Project N is greater than NPV of Project M, hence Project N is acceptable.

Year Cash Flow Cumulative Cash Flow PV factor @10% PV of Cash Flows 0 -20000 -20000 1 -20000 1 10000 -10000 0.9091 9091 2 10000 0 0.8264 8264 3 10000 10000 0.7513 7513 NPV 4868

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.