Question

Kaleb Konstruction, Inc., has the following mutually exclusive projects available. The company has historically used a three-year cutoff for projects. The required return is 11 percent.

Year	Project F		Project G
0	–$	139,000	–$	209,000
1		58,000		38,000
2		52,000		53,000
3		62,000		92,000
4		57,000		122,000
5		52,000		137,000

Required:

(a)	Calculate the payback period for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

	Payback period
Project F	years
Project G	years

(b)	Calculate the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

	Net present value
Project F	$
Project G	$

(c)	Which project should the company accept?
	(Click to select)Project F Project G

Answer 1

Payback period is the period in which initial investment is recovered.

PBP = Year In wchich least +Ve Bal to be recovered + [ Bala to be recovered in that Year / Bal Recovered in Next Year ]

= 2 Years + [ 29000 / 62000 ]

= 2 Years + 0.47 Years

= 2.47 Years

PBP = Year In wchich least +Ve Bal to be recovered + [ Bala to be recovered in that Year / Bal Recovered in Next Year ]

= 3 Years + [ 26000 / 122000 ]

= 3 Years + 0.21 Years

= 3.21 Years

Part B:

NPV = PV of Cas Inflows - PV of Cash Outflows

Part C:

As the Projects are mutually exclusive, we need to select the one with higher NPV.

Project G shold be accepted as it is having higher NPV.