Consider the following two mutually exclusive projects -$ 350,000 50,000 24,000

Question

Consider the following two mutually exclusive projects -$ 350,000 50,000 24,000 22,000 19,500 14,600 45,000 65,000 65,000 440,000 2 Whichever project you choose, if any, you require a 15 percent return on your investment a-1 What is the payback period for each project? (Round your answers to 2 decimal places. (e.g.. 32.16)) Project A Project B 3.4 years 2.21 years a-2 If you apply the payback criterion, which investment will you choose? O Project A OProject B b-1 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)) Discounted payback period 3.87 years Project B 297 years Project A b-2 If you apply the discounted payback criterion, which investment will you choose? O Project A Project B c-1 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)) NPV Project A Project B

Explanation / Answer

NPV equals the present value of all cash flows at 15% given discount rate.

Project A NPV

Project B NPV:

Year 0 1 2 3 4 Cash flow        (350,000)        45,000        65,000        65,000        440,000 Discount factor 1 0.8695652 0.7561437 0.6575162 0.57175325 Present value        (350,000) 39,130.43 49,149.34 42,738.56 251,571.43 NPV      32,589.76

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