Consider the following two mutually exclusive projects: The required return on t
ID: 2757566 • Letter: C
Question
Consider the following two mutually exclusive projects:
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 4 547,000 18,900Explanation / Answer
A-
B.
C. IRR has been calculated by checking different rates where NPV will be zero
Project A=16.5120%= rounded off 16.51%
Project B=25.6454%=rounded off 25.65%
Check
D)
E)
Project B has a lower or better payback period in compare to project A and Project B has a better profitaility index than project A . So based on both criterion , Project B need to be selected.
Year Cash Flow (A) Cumulative Cash Flow (A) Cash Flow (B) Cumulative Cash Flow (B) 0 -432000 -432000 -43500 -43500 1 40500 -391500 21100 -22400 2 65500 -326000 12600 -9800 3 82500 -243500 22100 12300 4 547000 303500 18900 31200 Payback period 3+(243500/547000) 2+(9800/22100) Payback period 3.45 2.44