Consider the following two mutually exclusive projects: The required return on t

Question

Consider the following two mutually exclusive projects:

  
The required return on these investments is 11 percent.

a. 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.)

b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
  

  
c. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

d. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

e. Based on your answers in (a) through (d), which project will you finally choose?

(Click to select)Project AProject B

Year Cash Flow (A) Cash Flow (B) 0 –$ 434,000 –$ 44,500 1 39,500 21,300 2 66,500 12,400 3 83,500 23,100 4 549,000 19,900

Explanation / Answer

Payback = 3.45

IRR = 16.48%

NPV = 78,256.26

PI = 1.18

For B:

Payback = 2.47

IRR = 25.57%

NPV = 14,752.57

PI = 1.33

11.00% Cash flows Year Discounted CF        (434,000.00) 0 -434000.00            39,500.00 1 35585.59            66,500.00 2 53972.89            83,500.00 3 61054.48          549,000.00 4 361643.30

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