Maxwell Software, Inc., has the following mutually exclusive projects. Year Proj
ID: 2728734 • Letter: M
Question
Maxwell Software, Inc., has the following mutually exclusive projects. Year Project A Project B 0 –$21,000 –$24,000 1 12,500 13,500 2 9,000 10,000 3 3,000 9,000 ________________________________________ a-1. Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Payback period Project A years Project B years ________________________________________ a-2. Which, if either, of these projects should be chosen? Project A Project B Both projects Neither project b-1. What is the NPV for each project if the appropriate discount rate is 17 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) NPV Project A $ Project B $ ________________________________________ b-2. Which, if either, of these projects should be chosen if the appropriate discount rate is 17 percent? Project A Project B Both projects Neither project
Explanation / Answer
Calculation of the Payback period Project A Year Cash Flow Cumulative 0 -21000 -21000 1 12500 -8500 2 9000 500 3 3000 3500 Payback Period = 1+8500/9000 Payback Period = 1.95 Years Project B Year Cash Flow Cumulative 0 -24000 -24000 1 13500 -10500 2 10000 -500 3 9000 8500 Payback Period = 2+500/9000 Payback Period = 2.05 Years Project A must be choosen as it has lower payback period Calculation of the NPV Project A NPV = 12500*.855+9000*.731+3000*.624-21000 10683.76+6574.62+1873.11-21000 NPV = $40,131.50 Project B. NPV = 13500*.855+10000*.731+9000*.624-24000 11538.46+7305.13+5619.33-24000 NPV = $40,131.50 $48,462.93