Year Project(A) Project (B) 0 -$30,000 -$30,000 1 13,000 5,000 2 11,000 5,000 3 9,000 5,000...

Year	Project(A)	Project (B)
0	-$30,000	-$30,000
1	13,000	5,000
2	11,000	5,000
3	9,000	5,000
4	7,000	5,000
5	0	5,000
6 7 8 9 10	0 0 0 0 0	5,000 5,000 5,000 5,000 5,000

The required rate of return is 10%.

3). What is the payback period for each of the projects? Which project should be accepted if the payback period method is applied? Assume that the target payback period is 4 years. Explain why.

(4). What is the discounted payback period for each of the projects? Which project should be accepted if the discounted payback period method is applied? Assume that the target discounted payback period is 4 years. Explain why.

(5). What is the profitability index for each of the projects? Which project should be accepted if the profitability index method is applied? Explain why.

(6). What is the average accounting return (AAR) for each of the projects, assuming that cash flows occurring after year 0 are net income? Which project should be accepted if the AAR method is applied? Also, assume that the target AAR is 20%.

Expert Solution

jeff jeffy answered 2 years ago

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