omeWork.Problem setSs. Chapters Save , 10, 11, 13, 15, and 16 core: 0 of 15 pts

Question

omeWork.Problem setSs. Chapters Save , 10, 11, 13, 15, and 16 core: 0 of 15 pts 2 of 9 (5 complete) | HW Score: 42.596, 42. 10-25 (similar to) Question Help * All techniques with NPV profile Mutually exclusive projects Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 12%. The cash flows for each project are shown in the following table. a. Calculate each project's payback period b. Calculate the net present value (NPV) for each project. c. Calculate the internal rate of return (IRR) for each project. d. Indicate which project you would recommend a. The payback period of project A is years. (Round to two decimal places.) Enter your answer in the answer box and then click Check Answer Check Answer parts remaining Clear All 11/27/20171

Explanation / Answer

Payback period:

Project A:

Payback period = 3 + $30000 / $60000

= 3.5 years.

Project B:

Payback period = 3 + $15000 / $45000

= 3.33 years

Computation of Net present value

Year Project A Cummulative cash flows Project B Cummulative cash flows 1 $45000 $45000 $45000 $45000 2 $50000 $95000 $45000 $90000 3 $55000 $150000 $45000 $135000 4 $60000 $210000 $45000 $180000 5 $65000 $275000 $45000 $225000

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