Consider the following cash flows of two mutually exclusive projects for A–Z Mot
ID: 2789879 • Letter: C
Question
Consider the following cash flows of two mutually exclusive projects for A–Z Motorcars. Assume the discount rate for both projects is 12 percent.
a. 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.)
b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
c. 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.)
Mini-SUV AZF
Full-SUV 0 –$ 550,000 –$ 900,000 1 340,000 370,000 2 220,000 460,000 3 170,000 310,000
Explanation / Answer
Dear Student Thankyou for using chegg a) PBP AZM Mini-SUV Time Amount Cumulative - -5,50,000.00 -5,50,000.00 1.00 3,40,000.00 -2,10,000.00 2.00 2,20,000.00 10,000.00 3.00 1,70,000.00 1,80,000.00 PBP= 1+210000/220000 PBP= 1.95years PBP AZF Full-SUV Time Amount Cumulative - -9,00,000.00 -9,00,000.00 1.00 3,70,000.00 -5,30,000.00 2.00 4,60,000.00 -70,000.00 3.00 3,10,000.00 2,40,000.00 PBP= 2+70000/3100000 PBP= 2.26years Question asks for PBP and not discounted PBP so I have provided PBP b) Statement showing Cash flows AZM Mini-SUV AZF Full-SUV Particulars Time PVf 12% Amount($) PV Amount($) PV Cash Outflows - 1.00 -5,50,000.00 -5,50,000.00 -9,00,000.00 -9,00,000.00 PV of Cash outflows = PVCO -5,50,000.00 -9,00,000.00 Cash inflows 1.00 0.8929 3,40,000.00 3,03,586.00 3,70,000.00 3,30,373.00 Cash inflows 2.00 0.7972 2,20,000.00 1,75,391.07 4,60,000.00 3,66,726.79 Cash inflows 3.00 0.7118 1,70,000.00 1,21,008.45 3,10,000.00 2,20,662.47 PV of Cash Inflows =PVCI 5,99,985.52 9,17,762.25 NPV= PVCI - PVCO 49,985.52 17,762.25 c) Calculation of IRR Statement showing Cash flows AZM Mini-SUV AZF Full-SUV Particulars Time PVf 10% Amount($) PV Amount($) PV Cash Outflows - 1.00 -5,50,000.00 -5,50,000.00 -9,00,000.00 -9,00,000.00 PV of Cash outflows = PVCO -5,50,000.00 -9,00,000.00 Cash inflows 1.00 0.9091 3,40,000.00 3,09,094.00 3,70,000.00 3,36,367.00 Cash inflows 2.00 0.8265 2,20,000.00 1,81,820.00 4,60,000.00 3,80,169.09 Cash inflows 3.00 0.7513 1,70,000.00 1,27,724.79 3,10,000.00 2,32,909.92 PV of Cash Inflows =PVCI 6,18,638.79 9,49,446.01 NPV= PVCI - PVCO 68,638.79 49,446.01 Statement showing Cash flows AZM Mini-SUV AZF Full-SUV Particulars Time PVf 20% Amount($) PV Amount($) PV Cash Outflows - 1.00 -5,50,000.00 -5,50,000.00 -9,00,000.00 -9,00,000.00 PV of Cash outflows = PVCO -5,50,000.00 -9,00,000.00 Cash inflows 1.00 0.8333 3,40,000.00 2,83,322.00 3,70,000.00 3,08,321.00 Cash inflows 2.00 0.6944 2,20,000.00 1,52,771.67 4,60,000.00 3,19,431.67 Cash inflows 3.00 0.5787 1,70,000.00 98,375.69 3,10,000.00 1,79,390.97 PV of Cash Inflows =PVCI 5,34,469.36 8,07,143.64 NPV= PVCI - PVCO -15,530.64 -92,856.36 AZM Mini-SUV IRR=10%+68638.79/(68638.79+15530.64)*(20%-10%) 18.15% AZF Full-SUV IRR=10%+49446.01/(49446.01+92856.36)*(20%-10%) 13.47%
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