Maxwell Software, Inc., has the following mutually exclusive projects. Calculate
ID: 2736560 • Letter: M
Question
Maxwell Software, Inc., has the following mutually exclusive projects.
Calculate the payback period for each project.
Payback period
Project A ________________years
Project B _________________years
Which, if either, of these projects should be chosen?
Project A
Project B
Both projects
Neither project
What is the NPV for each project if the appropriate discount rate is 17 percent?
Project B
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
Maxwell Software, Inc., has the following mutually exclusive projects.
Explanation / Answer
Answer 1a Calculation of Pay back period Project A Project B Year Cash Inflow Cumulative Cash inflow Cash Inflow Cumulative Cash inflow 1 $12,500.00 $12,500.00 $13,500.00 $13,500.00 2 $9,000.00 $21,500.00 $10,000.00 $23,500.00 3 $3,000.00 $24,500.00 $9,000.00 $32,500.00 Initial Investment $21,000.00 $24,000.00 Payback period Project A = 1 year + ($21000-$12500) / $9000 = 1.94 years Project B = 2 years + ($24000 - $23500) / $9000 = 2.06 years Answer 2a Project A should be chosen as it has lower pay back period. Answer 1b Calculation of NPV Project A Project B Year PV Factor @ 17% Cash Inflow Present Value Cash Inflow Present Value 0 1 -$21,000.00 -$21,000.00 -$24,000.00 -$24,000.00 1 0.854700855 $12,500.00 $10,683.76 $13,500.00 $11,538.46 2 0.730513551 $9,000.00 $6,574.62 $10,000.00 $7,305.14 3 0.624370556 $3,000.00 $1,873.11 $9,000.00 $5,619.34 NPV -$1,868.51 $462.93 Answer 2b Project B should be chosen as it has positive NPV