Consider the following two mutually exclusive projects: What is the payback peri
ID: 2633583 • Letter: C
Question
Consider the following two mutually exclusive projects:
What is the payback period for each project in years? (2 decimal places)
What is the NPV for each project? (2 decimal places)
What is the IRR for each project? (2 decimal places)
What is the profitability index for each project? (3 decimal places)
Consider the following two mutually exclusive projects: What is the payback period for each project in years? (2 decimal places) What is the NPV for each project? (2 decimal places) What is the IRR for each project? (2 decimal places) What is the profitability index for each project? (3 decimal places)Explanation / Answer
Solution:
year Cash flow A Cash flow B 0 -433000 -44000 1 40000 21200 2 66000 12500 3 83000 22600 4 548000 19400 Calculating the payback period year Cash flow A Cumulative Cash flow B 0 -433000 -433000 -44000 -44000 1 40000 -393000 21200 -22800 2 66000 -327000 12500 -10300 3 83000 -244000 22600 12300 4 548000 304000 19400 31700 Payback Project A 3.45 years Project B 2.46 years Calculating NPV As the rate is not mentioned, assuming that NPV is calculated @ 12% year Cash flow A Cash flow B 0 -433000 -44000 1 40000 21200 2 66000 12500 3 83000 22600 4 548000 19400 NPV @ 12% $62,670.75 $13,308.78 Calculatung IRR year Cash flow A Cash flow B 0 -433000 -44000 1 40000 21200 2 66000 12500 3 83000 22600 4 548000 19400 IRR 16.50% 25.61% Calculating profitability index year Cash flow A Cash flow B 0 -433000 -44000 1 40000 21200 2 66000 12500 3 83000 22600 4 548000 19400 Profitability index = PV of cash flows Initial investment Assuming @ 12% Project A = $4,95,670.75 $4,33,000.00 = 1.14 Project B = $57,308.78 $44,000.00 = 1.30