Maxwell Software, Inc., has the following mutually exclusive projects. a-1. Calc

Question

Maxwell Software, Inc., has the following mutually exclusive projects. 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.) 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 15 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.) b-2. Which, if either of these projects should be chosen if the appropriate discount rate is 15 percent? Project A Project B Both projects Neither project

Explanation / Answer

On the basis of NPV Project B is to be chosen

On the basis of Payback Project A is to be chosen

Particulars Year Cash Flows Cum Cash Flows PVF @ 15% PV Cash Outflows 0 -17000 -17000 1 -17000 Cash Inflows 1 10500 -6500 0.869565217 9130.435 Cash Inflows 2 7000 500 0.756143667 5293.006 Cash Inflows 3 2600 3100 0.657516232 1709.542 Net Present Value -867.017 Payback period = 1 year + 6500/7000 i.e 1.92 years Particulars Year Cash Flows Cum Cash Flows PVF @ 15% PV Cash Outflows 0 -20000 -20000 1 -20000 Cash Inflows 1 11500 -8500 0.869565217 10000 Cash Inflows 2 8000 -500 0.756143667 6049.149 Cash Inflows 3 7000 6500 0.657516232 4602.614 Net Present Value 651.763 Payback period = 2 years + 500/7000 i.e 2.07 years

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