Quattro, Inc. has the following mutually exclusive projects available. The compa
ID: 2675251 • Letter: Q
Question
Quattro, Inc. has the following mutually exclusive projects available. The company has historically used a 4-year cutoff for projects. The required return is 11 percent.The payback for Project A is ____ while the payback for Project B is _____. The NPV for Project A is _____ while the NPV for Project B is _____. Which project, if any, should the company accept?
Year Cash Flow (A) Cash Flow (B)
0 -$82,000 -$125,000
1 $15,700 $38,600
2 $18,300 $33,400
3 $23,900 $31,200
4 $26,200 $27,500
5 $32,100 $24,000
Explanation / Answer
Quattro, Inc. has the following mutually exclusive projects available. The company has historically used a 4-year cutoff for projects. The required return is 11 percent.
The payback for Project A is ____ while the payback for Project B is _____. The NPV for Project A is _____ while the NPV for Project B is _____. Which project, if any, should the company accept?
Year Cash Flow (A) Cash Flow (B)
0 -$82,000 -$125,000
1 $15,700 $38,600
2 $18,300 $33,400
3 $23,900 $31,200
4 $26,200 $27,500
5 $32,100 $24,000
Payback A = 3 + ($82,000 - $15,700 - $18,300 - $23,900)/$26,200 = 3.92 years
Payback B = 3 + ($125,000 - $38,600 - $33,400 - $31,200)/$27,500 = 3.79 years
The NPV for Project A is ------$780.85;
NPV for Project B is -$7,945.93;
accept Project A only