Suppose your firm is considering two mutually exclusive, required projects with
ID: 2788170 • Letter: S
Question
Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 10 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.
Use the discounted payback decision rule to evaluate these projects; which one(s) should be accepted or rejected?
accept both A and B
accept A, reject B
accept neither A nor B
reject A, accept B
Time: 0 1 2 3 Project A Cash Flow -22,000 12,000 32,000 3,000 Project B Cash Flow -32,000 12,000 22,000 52,000Explanation / Answer
Using Financial Calculator
CF0=-22000 (press enter)
CF1= 12000 (press enter)
CF2= 32000 (press enter)
CF3= 3000 (press enter)
Press NPV
Interest =10
Scroll down four time press CPT
Discounted pay back=1.42
Using Financial Calculator
CF0=-32000 (press enter)
CF1= 12000 (press enter)
CF2= 22000 (press enter)
CF3= 52000 (press enter)
Press NPV
Interest =10
Scroll down four time press CPT
Discounted pay back=2.07
Answer A, accept both project
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