A company decided to choose between two projects based on the shorter discounted payback period at...

A company decided to choose between two projects based on the shorter discounted payback period at an interest rate of i=10%. Both projects will have a service life of 6 years. Project A needs an initial investment of $20,000 and will generate a net cash flow in years 1 through 6 of $6,500. Project B needs $17,500 to invest initially, and will have a variable net cash flow as follows: $1,500 in year 1, $3,000 in year 2, $4,500 in year 3, $5,000 in year 4, and $7,000 each in years 5 and 6.Which project will the company choose and what is its discounted payback period?

Expert Solution

Rahul Sunny answered 8 months ago

Distinguish between the payback period and the discounted payback period?

If these two projects are mutually exclusive, which project should the company accept based on the NPV, IRR, MIRR, payback, and discounted payback period for each project?

Considering the following projects.ProjectYear01234ACash flows-$100$35$35$35$35BCash flows-$100$60$50$40$30Project A has WACC = 6.00% while project B has WACC = 8.50%.If these two projects are mutually exclusive, which project should the company accept based on the NPV, IRR, MIRR, payback, and discounted payback period for each project?Would your decision (Your answer from part A) change if these two projects were independent?

q.1 Discounted payback period. Becker, Inc. uses the discounted payback period for projects costing less than...

q.1 Discounted payback period. Becker, Inc. uses the discounted payback period for projects costing less than $25,000 and has a cutoff period of four years for these small-value projects. Two projects, R and S, are under consideration. Their anticipated cash flows are listed in the following table. If Becker uses a discount rate of 4 %4% on these projects, are they accepted or rejected? If it uses a discount rate of 12 %12%? A discount rate of 18 %18%? Why...

Given the following two projects and their cash flows, , calculate the discounted payback period with...

Given the following two projects and their cash flows, , calculate the discounted payback period with a discount rate of 6%, 8%,and 18%. What do you notice about the payback period as the discount rate rises? Explain this relationship. With a discount rate of 6%, the cash outflow for project A is: A. recovered in 5 years. B.recovered in 3.16 years. C.recovered in 3 years. D.never fully recovered. Cash Flow A B Cost $8,000 $100,000 Cash flow year 1...

For the following two projects, determine the Payback Period Discounted Payback Net Present Value Profitability Index...

For the following two projects, determine the Payback Period Discounted Payback Net Present Value Profitability Index (Benefit-Cost Ratio) Internal Rate of Return Modified Internal Rate of Return Project A Project B Year Net Income Cash Flow Net Income Cash Flow 0 (15,000) (19,000) 1 5,000 6,000 3,000 4,000 2 5,000 6,000 5,000 6,000 3 5000 6,000 7,000 8,000 4 5,000 6,000 11,000 12,000 Risk Index 1.80 .60 The firm’s cost of capital ko is 15% and the risk free...

Capital Budgeting Assignment For the following two projects, determine the Payback Period Discounted Payback Net Present...

Capital Budgeting Assignment For the following two projects, determine the Payback Period Discounted Payback Net Present Value Profitability Index (Benefit-Cost Ratio) Internal Rate of Return Modified Internal Rate of Return Project A Project B Year Net Income Cash Flow Net Income Cash Flow 0 (15,000) (19,000) 1 5,000 6,000 3,000 4,000 2 5,000 6,000 5,000 6,000 3 5000 6,000 7,000 8,000 4 5,000 6,000 11,000 12,000 Risk Index 1.80 .60 The firm’s cost of capital ko is 15% and...

Capital Budgeting For the following two projects, determine the 1. Payback Period 2. Discounted Payback 3....

Capital Budgeting For the following two projects, determine the 1. Payback Period 2. Discounted Payback 3. Net Present Value 4. Profitability Index (Benefit-Cost Ratio) 5. Internal Rate of Return 6. Modified Internal Rate of Return Project A Project B Year Net Income Cash Flow Net Income Cash Flow 0 (15,000) (19,000) 1 5,000 6,000 3,000 4,000 2 5,000 6,000 5,000 6,000 3 5000 6,000 7,000 8,000 4 5,000 6,000 11,000 12,000 Risk Index 1.80 .60 The firm’s cost of capital...

5. What is the difference between the payback period and the discounted payback? 6. Define the...

5. What is the difference between the payback period and the discounted payback? 6. Define the Average Accounting Return (AAR). What are the disadvantages of the AAR? 7. What is the Internal Rate of Return (IRR)? What is the IRR rule? How is the IRR calculated? 8. Do the NPV rules and IRR rules lead to identical investment decisions? If so, under what circumstances?

the following techniques for analyzing projects: Payback Rule Discounted Payback Period Net Present Value Internal Rate...

the following techniques for analyzing projects: Payback Rule Discounted Payback Period Net Present Value Internal Rate of Return Why must corporate managers use multiple techniques of project evaluation? Which technique is most commonly used and why? Describe several ways the techniques above can be used as one progresses in their professional career. (Identify specific types of projects that can be analyzed and discuss the advantages and disadvantages of using the techniques above)

4. Find the Discounted Payback period for the following projects. The discount rate is 7%. Initial...

4. Find the Discounted Payback period for the following projects. The discount rate is 7%. Initial Outlay 17,827 Year 1 5917 Year 2 5484 Year 3 5968 Year 4 8405

Question