Homework: Assignment 5 Score: 0 of 10 pts P10-21 (similar to) Save 8 of 10 (5 co

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Homework: Assignment 5 Score: 0 of 10 pts P10-21 (similar to) Save 8 of 10 (5 complete) Hw Score: 41.67%, 41.67 of 100 pts E Question Help All techniques, conflicting rankings Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, each with an initial investment of $170,000. The company's board of directors has set a 4-year payback requirement and has set its cost of capital at 10% The cash inflows assocated with the two p ects are shown n the following table a. Calculate the payback period for each project. Rank the projects by payback period b. Calculate the NPV of each project. Rank the project by NPV c. Calculate the IRR of each project. Rank the project by IRR d. Make a recommendation. . The payback period of project Aisyears. (Round to two decimal places.) Enter your answer in the answer box and then click Check Answer Clear All Check Answer

Explanation / Answer

Project A

Project B

Year

cash flow

present value of cash flow = cash flow/(1+r)^n r = 10%

Year

cash flow

present value of cash flow = cash flow/(1+r)^n r = 10%

0

-170000

-170000

0

-170000

-170000

1

55000

50000

1

65000

59090.91

2

55000

45454.55

2

60000

49586.78

3

55000

41322.31

3

50000

37565.74

4

55000

37565.74

4

50000

37565.74

5

55000

34150.67

5

50000

31046.07

6

55000

31046.07

6

50000

28223.7

NPV

sum of present value of cash flow

69539.34

NPV

sum of present value of cash flow

73078.93

IRR

Using IRR function in MS excel =irr(-170000,55000,55000,55000,55000,55000,55000)

23.02%

IRR

Using IRR function in MS excel =irr(-170000,65000,60000,50000,50000,50000,50000)

23.90%

payback period

initial investment/annual cash flow = 170000/55000

3.09

payback period

initial investment/annual cash flow = 170000/55000

2.90

Project A

Project B

Project final selected

Year

cash flow

cumulative cash flow

NPV

69539.34

73078.93

Project B

0

-170000

IRR

23.02%

23.90%

Project B

1

65000

65000

Payback period

3.09

2.90

Project B

2

60000

125000

3

50000

45000

amount to be recovered

4

50000

5

50000

6

50000

payback period

year before the final year of recovery +(amount to be recovered/cash flow of of the year of final recovery)

2+(45000/50000)

2.9

Project A

Project B

Year

cash flow

present value of cash flow = cash flow/(1+r)^n r = 10%

Year

cash flow

present value of cash flow = cash flow/(1+r)^n r = 10%

0

-170000

-170000

0

-170000

-170000

1

55000

50000

1

65000

59090.91

2

55000

45454.55

2

60000

49586.78

3

55000

41322.31

3

50000

37565.74

4

55000

37565.74

4

50000

37565.74

5

55000

34150.67

5

50000

31046.07

6

55000

31046.07

6

50000

28223.7

NPV

sum of present value of cash flow

69539.34

NPV

sum of present value of cash flow

73078.93

IRR

Using IRR function in MS excel =irr(-170000,55000,55000,55000,55000,55000,55000)

23.02%

IRR

Using IRR function in MS excel =irr(-170000,65000,60000,50000,50000,50000,50000)

23.90%

payback period

initial investment/annual cash flow = 170000/55000

3.09

payback period

initial investment/annual cash flow = 170000/55000

2.90

Project A

Project B

Project final selected

Year

cash flow

cumulative cash flow

NPV

69539.34

73078.93

Project B

0

-170000

IRR

23.02%

23.90%

Project B

1

65000

65000

Payback period

3.09

2.90

Project B

2

60000

125000

3

50000

45000

amount to be recovered

4

50000

5

50000

6

50000

payback period

year before the final year of recovery +(amount to be recovered/cash flow of of the year of final recovery)

2+(45000/50000)

2.9

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