Please assist with problem listed below. Score: 0 of 10 pts 8 of 10 (4 complete)
ID: 2788293 • Letter: P
Question
Please assist with problem listed below.
Score: 0 of 10 pts 8 of 10 (4 complete) HW Score: 40%, 40 of 100 pts P10-21 (similar to) Question Help All techniques, conflicting rankings Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, each with an initial investment of $170,000. The company's board of directors has set a 4-year payback requirement and has set its cost of capital at 12%. The cash inflows associated with the two projects are shown in the following table: a. Calculate the payback period for each project. Rank the projects by payback period. b. Calculate the NPV of each project. Rank the project by NPV c. Calculate the IRR of each project. Rank the project by IRR. d. Make a recommendation Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Cash inflows (CF Year Project A 50,000 $50,000 $50,000 $50,000 $50,000 $50,000 Project B 85,000 $70,000 $30,000 $30,000 $30,000 $30,000 Check AnswerExplanation / Answer
a.
1st part:
Payback period: This is the period required for recovering the initial investment.
Project A = Initial investment / CF = $170,000 / $50,000 = 3.4 years
Project B = $85,000 + $70,000 + ($170,000 - $85,000 - $70,000)
= $85,000 + $70,000 + $15,000
= 1 year + 1 year + ($15,000 / $30,000) year
= 1 + 1 + 0.5
= 2.5 year
2nd part:
Project B has lower payback period. It means recovering is speeder than project A.
The project having lower payback period should be ranked 1st.
Rank 1: Project B
Rank 2: Project A
b.
1st part:
Net present value (NPV) is the difference of present value of net cash flows and the initial investment.
Project A, NPV
Year
CF
Factor (F) = 1/(1+0.12)^n
PV = CF × F
0
-170,000
1
-170,000
1
50,000
0.8929
44,645
2
50,000
0.7972
39,860
3
50,000
0.7118
35,590
4
50,000
0.6355
31,775
5
50,000
0.5674
28,370
6
50,000
0.5066
25,330
NPV
35,570
Answer: The NPV of project A is $35,570.
Project B, NPV
Year
CF
Factor (F) = 1/(1+0.12)^n
PV = CF × F
0
-170,000
1
-170,000
1
85,000
0.8929
75,896.50
2
70,000
0.7972
55,804
3
30,000
0.7118
21,354
4
30,000
0.6355
19,065
5
30,000
0.5674
17,022
6
30,000
0.5066
15,198
NPV
34,339.50
Answer: The NPV of project B is $34,339.50.
2nd part:
Project A has higher NPV. It means higher return than project B.
The project having higher NPV should be ranked 1st.
Rank 1: Project A
Rank 2: Project B
Year
CF
Factor (F) = 1/(1+0.12)^n
PV = CF × F
0
-170,000
1
-170,000
1
50,000
0.8929
44,645
2
50,000
0.7972
39,860
3
50,000
0.7118
35,590
4
50,000
0.6355
31,775
5
50,000
0.5674
28,370
6
50,000
0.5066
25,330
NPV
35,570