Chapter 9, #9 Consider the following two mutually exclusive projects: What is th
ID: 2738675 • Letter: C
Question
Chapter 9, #9
Consider the following two mutually exclusive projects:
What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
What is the discounted payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
c-1
What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Year Cash Flow
(A) Cash Flow
(B) 0 –$ 349,000 –$ 49,000 1 46,000 24,100 2 66,000 22,100 3 66,000 19,600 4 441,000 14,700
Explanation / Answer
All Amounts in $ a-1. Payback Period for each Project Project A Year Cash Cumulative Inflow Inflow 1 46000 46000 2 66000 112000 3 66000 178000 4 441000 619000 The outflow for the project is $ 349,000 Hence the payback period for the project will be 3 years and 4.653061 months Project B Year Cash Cumulative Inflow Inflow 1 24100 24100 2 22100 46200 3 19600 65800 4 14700 80500 The outflow for the project is $ 49,000 Hence the payback period for the project will be 2 years and 2.285714 months a-2. Based on the payback period criterion, Project B should be chosen. b-1. Discounted Payback Period for each Project Project A Year Cash Discounted Cumulative Inflow Cash Inflow Discounted Inflow 1 46000 71801.216 71801.22 2 66000 88809.6 160610.8 3 66000 76560 237170.8 4 441000 441000 678170.8 The outflow for the project is $ 349,000 Hence the payback period for the project will be 3 years and 3.042971 months Project B Year Cash Discounted Cumulative Inflow Cash Inflow Discounted Inflow 1 24100 37617.5936 37617.59 2 22100 29737.76 67355.35 3 19600 22736 90091.35 4 14700 14700 104791.4 The outflow for the project is $ 49,000 Hence the payback period for the project will be 1 year and 4.593114 months b-2. Based on the discounted payback criterion also, Project B should be accepted. c-1. With a return on capital of 16%, the NPV for each project will be NPV for Project A $ 623,748.02 NPV for Project B $ 92,133.91