Consider the following two mutually exclusive projects: The required return on t
ID: 2715671 • Letter: C
Question
Consider the following two mutually exclusive projects: The required return on these investments is 13 percent.
Required:
(a) What is the payback period for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Payback period: Project A years? Project B years?
(b) What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Net present value: Project A $? Project B $?
(c) What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Internal rate of return: Project A %? Project B %?
(d) What is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 3 decimal places (e.g., 32.161).) Profitability index: Project A? Project B?
Year Cash Flow (A) Cash Flow (B) 0 –$422,000 –$38,500 1 45,500 20,100 2 60,500 13,600 3 77,500 17,100 4 537,000 13,900Explanation / Answer
Answer:(a) Payback period:
Project A=3 years+238500/537000=3.444 years
PRoject B=2 years+4800/17100=2.28 years
Answer:(b) NPV of the Project :
Answer:(c) IRR:
Project A;
Project B:
Answer:(d) Profitibility index:(PV of future cash flows) ÷ Initial investment
PRoject A=470690.1/422000=1.115
Project B=48811.82/38500=1.2678
Year Cash Flow (A) Cumulative cash flow Cash Flow (B) Cumulative cash flow 0 -422000 -422000 -38500 -38500 1 45500 -376500 20100 -18400 2 60500 -316000 13600 -4800 3 77500 -238500 17100 12300 4 537000 298500 13900 26200