Question

Consider the following two mutually exclusive projects:

  

Year	Cash Flow (A)	Cash Flow (B)
0	–$227,084	–$14,907
1	25,100	4,769
2	57,000	8,356
3	57,000	13,387
4	423,000	8,088

  

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)  3.05 years  3.11 years  3.37 years  3.3 years  3.21 years

   

(b)	What is the payback period for Project B?
	(Click to select)  2.07 years  2.2 years  2.13 years  2.24 years  2.03 years

(c)	What is the discounted payback period for Project A?
	(Click to select)  3.21 years  3.31 years  3.15 years  3.48 years  3.41 years

(d)	What is the discounted payback period for Project B?
	(Click to select)  2.26 years  2.33 years  2.15 years  2.38 years  2.2 years

(e)	What is the NPV for Project A?
	(Click to select)  $230,238.96  $218,727.01  $241,750.91  $237,146.13  $223,331.79

(f)	What is the NPV for Project B ?
	(Click to select)  $13,941.54  $15,115.56  $14,675.3  $14,235.04  $15,409.07

  

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

(h)	What is the IRR for Project B?
	(Click to select)  40.95%  40.17%  39%  37.83%  37.05%

(i)	What is the profitability index for Project A?
	(Click to select)  2.014  1.913  1.953  2.115  2.074

(j)	What is the profitability index for Project B?
	(Click to select)  1.925  1.984  2.044  2.084  1.885

Answer 1

Present Value = Future value/ ((1+r)^t)
where r is the interest rate that is 6% and t is the time period in years.
Net present value (NPV) = initial investment + sum of present values of future cash flows.
PROJECT A
Year	0	1	2	3	4
cash flow	-227084	25100	57000	57000	423000
present value		23679.2453	50729.8	47858.3	335055.6
a) payback period		3.21 years
c) discounted payback period for project A				3.31 years
e) NPV for project A		230238.96
Use the formulas financial function in excel to find the IRR.
g) IRR for project A		30.00%
i) Profitability index for project A			2.014
PROJECT B
Year	0	1	2	3	4
cash flow	-14907	4769	8356	13387	8088
present value		4499.0566	7436.81	11239.98	6406.454
b) payback period		2.13 years
d) discounted payback period for project B				2.26 years.
f) NPV for project B		14675.30
Use the formulas financial function in excel to find the IRR.
h) IRR for project A		39.00%
j) Profitability index for project B			1.984