Consider the following two mutually exclusive projects: 18,900 The required retu
ID: 2757560 • Letter: C
Question
Consider the following two mutually exclusive projects:
18,900
The required return on these investments is 13 percent.
What is the payback period for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)
What is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 3 decimal places (e.g., 32.161).)
Year Cash Flow (A) Cash Flow (B) 0 –$432,000 –$43,500 1 40,500 21,100 2 65,500 12,600 3 82,500 22,100 4 547,00018,900
Explanation / Answer
Payback Period Outflow -432000.00 Recovery Year 1 40500 Year 2 65000 Year 3 82500 188000 Year 4 244000.00 X Actual Recovery in Yr 4 5470000 12 month X 5.352833638 244000*12/547000 Payback Perid Project A 3 Yr & 5.35 month Payback Period Outflow -43500.00 Recovery Year 1 21100 Year 2 12600 33700 Yr 3 -9800.00 X Actual Recovery In Yr 3 22100 12 month Recovery of 9800 5.321267 9800*12/22100 Payback Period Project B 2 Yr & 5.32 month Year Cash Flow (A) Cash Flow (B) Discount Factor @13% PV of Cash Flow A at Discount Rate 0f 13% PV of Cash Flow B at Discount Rate 0f 13% 0 -432000.00 -43500.00 1 -432000 -43500 1 40500.00 21100.00 0.884955752 35840.70796 18672.56637 2 65500.00 12600.00 0.783146683 51296.10776 9867.648211 3 82500.00 22100.00 0.693050162 57176.63839 15316.40859 4 547000.00 18900.00 0.613318728 335485.344 11591.72395 IRR 16.51% 25.65% NPV 47798.79815 11948.34712 PI 1+NPV/Initial Investment 1.110645366 1.274674646 What is the payback period for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Payback period Project A 3 Yr & 5.35 month Project B 2 Yr & 5.32 month (b) What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Net present value Project A 47798.79815 Project B 11948.34712 (c) What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Internal rate of return Project A 16.51% Project B 25.65% (d) What is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 3 decimal places (e.g., 32.161).) Profitability index Project A 1.11 Project B 1.27 (e) Based on your answers in (a) through (d), which project will you finally choose? Project B Has Higher IRR, means higher cash flows in Project B. it is Betteron IRR Basis Project A Has higher NPV on basis of Discount rate.It should be selected on NPV basis Poject B has higher PI. It should be selected Finally chosse Project B