Consider the following two mutually exclusive projects: Whichever project you ch
ID: 2633732 • Letter: C
Question
Consider the following two mutually exclusive projects:
Whichever project you choose, if any, you require a 15 percent return on your investment.
(A) The payback period for Project A and B is and years, respectively.
(B) The discounted payback period for Projects A and B is and years, respectively.
(C) The NPV for Projects A and B is $ and $ , respectively.
(D) The IRR for Projects A and B is Percent and Percent, respectively.
(E) The profitability index for Projects A and B is and , respectively.
(F) Based on your answers in (a) through (e), you will finally choose Project A or B
Year Cash Flow (A) Cash Flow (B) 0 -$207,316 -$24,931 1 26,800 11,945 2 53,000 13,070 3 51,000 11,317 4 391,000 10,565Explanation / Answer
(A) The payback period for Project A and B is and years, respectively.
payback period for Project A = 3 + (207316-26800-53000-51000)/391000= 3.20 years
payback period for Project B = 1+ (24931-11945)/13070= 1.99 years
(B) The discounted payback period for Projects A and B is and years, respectively.
discounted payback period for Projects A = 3+ (207316-26800/1.15-53000/1.15^2-51000/1.15^3)/(391000/1.15^4)= 3.49 years
discounted payback period for Projects B = 2+ (24931-11945/1.15^1