Maxwell Software, Inc., has the following mutually exclusive projects Year Proje
ID: 2731631 • Letter: M
Question
Maxwell Software, Inc., has the following mutually exclusive projects Year Project A ProjectEB -$29,000 16,000 10,000 11,500 -$26.000 15,000 11,500 3,500 0 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 Project B years years a-2. Which, if either, of these projects should be chosen? Project A Project B O Both projects Neither project b-1. What is the NPV for each project if the appropriate discount rate is 13 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 13 percent? Project A Project B O Both projects O Neither projectExplanation / Answer
Project A Project B Year Project A Cumulative Cash flow Project B Cumulative Cash flow 0 (26,000) (26,000) (29,000) (29,000) 1 15,000 (11,000) 16,000 (13,000) 2 11,500 500 10,000 (3,000) 3 3,500 4,000 11,500 8,500 1. Project Payback Period Payback Period Years Project A 1 years + 11000/11500 1.96 Project B 2 years + 3000/11500 2.26 2. Project to be chosen :- Project B should be chosen although it has higher payback period, but it has more Cash generation then Project A 3. NPV at Discount Rate @ 13% Project A Project B Year Project A PVF@ 13% Present Value Cumulative Cash flow Project B PVF@ 13% Present Value Cumulative Cash flow 0 (26,000) 1.000 -26,000 (26,000) (29,000) 1.000 -29,000 (29,000) 1 15,000 0.885 13,274 (12,726) 16,000 0.885 14,159 (14,841) 2 11,500 0.783 9,006 (1,226) 10,000 0.783 7,831 (4,841) 3 3,500 0.693 2,426 2,274 11,500 0.693 7,970 6,659 NPV Project A = 2274 NPV Project B = 6659 4. Project to be chosen on the basis of NPV Project B should be chosen as it has higher NPV.