In: Finance
Britney Javelin Company is considering two investments, both of which cost $24,000. The cash flows are as follows: Use Appendix B and Appendix D.
Year | Project M | Project N | ||||
1 | $9,000 | $8,000 | ||||
2 | 10,000 | 9,000 | ||||
3 | 10,000 | 15,000 | ||||
a. Calculate the payback period for project M and project N. (Round the final answers to 2 decimal places.)
Payback period | |||
Project M | years | ||
Project N | years | ||
b-1. Calculate the NPV for project M and project N. Assume a cost of capital of 8 percent. (Round "PV Factor" to 3 decimal places. Round the intermediate and final answers to the nearest whole dollar.)
Net present value | |
Project M | $ |
Project N | $ |
b-2. Which of the two projects should be chosen based on the NPV method?
Project M
Project N
Both
c. Should a firm normally have more confidence in answer derived based on NPV method or Payback method?
NPV method
Pay back method