Question

Consider the following two mutually exclusive projects:

  

Year	Cash Flow (A)	Cash Flow (B)
0	–$218,006	–$15,742
1	28,000	5,304
2	57,000	8,103
3	56,000	13,294
4	392,000	9,377

  

Whichever project you choose, if any, you require a 6 percent return on your investment.

Required:

(a)	What is the payback period for Project A?
	(Click to select)   3.04 years   3.1 years   3.29 years   3.36 years   3.2 years

   

(b)	What is the payback period for Project B?
	(Click to select)   2.24 years   2.18 years   2.07 years   2.11 years   2.28 years

(c)	What is the discounted payback period for Project A?
	(Click to select)   3.47 years   3.3 years   3.2 years   3.14 years   3.4 years

(d)	What is the discounted payback period for Project B?
	(Click to select)   2.2 years   2.43 years   2.39 years   2.25 years   2.32 years

(e)	What is the NPV for Project A?
	(Click to select)   $205,825.37   $216,658.29   $227,491.2   $210,158.54   $223,158.04

(f)	What is the NPV for Project B ?
	(Click to select)   $14,309.64   $15,062.78   $14,610.89   $15,514.66   $15,815.91

  

(g)	What is the IRR for Project A?
	(Click to select)   28.5%   30%   31.5%   29.1%   30.9%

(h)	What is the IRR for Project B?
	(Click to select)   38%   39.14%   36.86%   36.1%   39.9%

(i)	What is the profitability index for Project A?
	(Click to select)   2.054   1.994   1.934   1.894   2.094

(j)	What is the profitability index for Project B?
	(Click to select)   2.016   2.055   1.898   1.859   1.957

Answer 1

a

Project A
Year	Cash flow stream	Cumulative cash flow
0	-218006	-218006
1	28000	-190006
2	57000	-133006
3	56000	-77006
4	392000	314994
Payback period is the time by which undiscounted cashflow cover the intial investment outlay
this is happening between year 3 and 4
therefore by interpolation payback period = 3 + (0-(-77006))/(314994-(-77006))
3.2 Years
b
Project B
Year	Cash flow stream	Cumulative cash flow
0	-15742	-15742
1	5304	-10438
2	8103	-2335
3	13294	10959
4	9377	20336
Payback period is the time by which undiscounted cashflow cover the intial investment outlay
this is happening between year 2 and 3
therefore by interpolation payback period = 2 + (0-(-2335))/(10959-(-2335))
2.18 Years
c
Project A
Year	Cash flow stream	Cumulative cash flow
0	-218006	-218006
1	28000	-190006
2	57000	-133006
3	56000	-77006
4	392000	314994
Discounted payback period is the time by which discounted cashflow cover the intial investment outlay
this is happening between year 3 and 4
therefore by interpolation payback period = 3 + (0-(-93842.43))/(216658.29-(-93842.43))
3.3 Years
Where
Discounting factor =(1 + discount rate)^(corresponding year)
Discounted Cashflow=Cash flow stream/discounting factor
d
Project B
Year	Cash flow stream	Cumulative cash flow
0	-15742	-15742
1	5304	-10438
2	8103	-2335
3	13294	10959
4	9377	20336
Discounted payback period is the time by which discounted cashflow cover the intial investment outlay
this is happening between year 2 and 3
therefore by interpolation payback period = 2 + (0-(-3526.59))/(7635.31-(-3526.59))
2.32 Years
Where
Discounting factor =(1 + discount rate)^(corresponding year)
Discounted Cashflow=Cash flow stream/discounting factor

Please ask remaining parts separately