1) Consider the following two mutually exclusive projects: What is the payback p
ID: 2806625 • Letter: 1
Question
1) Consider the following two mutually exclusive projects:
What is the payback period for each project? (Round your answers to 2 decimal places. (e.g., 32.16))
What is the discounted payback period for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
What is the NPV for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
What is the IRR for each project? (Round your answers to 2 decimal places. (e.g., 32.16))
What is the profitability index for each project? (Do not round intermediate calculations and round your final answers to 3 decimal places. (e.g., 32.161))
Explanation / Answer
Year Cash flow(A) Cash flow(B) 0 -3,48,000.00 -51,000.00 1 47,000.00 24,200.00 2 67,000.00 22,200.00 3 67,000.00 19,700.00 4 4,42,000.00 14,800.00 Payback period cummulative cash flows Year A B 0 -3,48,000.00 -51,000.00 1 -3,01,000.00 -26,800.00 2 -2,34,000.00 -4,600.00 3 -1,67,000.00 15,100.00 4 2,75,000.00 29,900.00 Payback period 3.38 2.23 Years Payback is always between years when cummulative cashflows becomes zero So basis payback project B is selected Year Cash flow(A) Discounted cash flows Cumm discounted cash flows Cash flow(B) Discounted cash flows Cumm discounted cash flows 0 -3,48,000.00 -3,48,000.00 -3,48,000.00 -51,000.00 -51,000.00 -51,000.00 1 47,000.00 41228.07018 -3,06,771.93 24,200.00 21228.0702 -29,771.93 2 67,000.00 51554.32441 -2,55,217.61 22,200.00 17082.1791 -12,689.75 3 67,000.00 45223.09159 -2,09,994.51 19,700.00 13296.9389 607.19 4 4,42,000.00 298337.4102 88,342.90 14,800.00 9989.57844 10,596.77 Discounted Payback period 3.70 2.95 Years Payback is always between years when cummulative cashflows becomes zero So basis discounted payback project B is selected Year Cash flow(A) Cash flow(B) 0 -3,48,000.00 -51,000.00 1 47,000.00 24,200.00 2 67,000.00 22,200.00 3 67,000.00 19,700.00 4 4,42,000.00 14,800.00 Rate 14% 14% NPV 51,704.97 9,369.97628173774 Based on NPV project A will be selected IRR 19% 23% Using IRR function in excel and cash flows as calculated above Based on IRR project B will be selected Profitability index 0.15 0.18 Baserd on profitability index project B will be selected SO overall in most of the criterias project B is selected so we should go with project B
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