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Capital Budgeting Tools: Payback and NPV NJF Enterprises is trying to select the best investment from...

Capital Budgeting Tools: Payback and NPV

NJF Enterprises is trying to select the best investment from among four alternatives. Each alternative involves an initial outlay of $87,900, and the company uses a 13 percent discount rate. The cash inflows for each investment follow:

Year

A

B

C

D

1

$10,000

$50,000

$25,000

$ 0

2

20,000

40,000

25,000

0

3

30,000

30,000

25,000

0

4

40,000

0

25,000

55,000

5

50,000

0

5,000

60,000

Evaluate each investment alternative by answering the following questions and performing the requested calculations. Show your work. Please organize your responses as per each question part - a.i., a.ii, ...b.i., b.ii,...,c (total of 9 responses to this question).

  1. Payback
    1. Calculate the Payback Period (in years, to 2 decimal places) for each investment.
    2. Which investment(s) could be chosen if the company had a payback threshold of 4.00 years?
    3. Which is the best investment choice based on Payback Period (choose one investment only)?
    4. Why did you choose the investment in part a) iii above?
  2. Net Present Value
    1. Calculate the Net Present Value (in whole numbers) for each investment.
    2. Based on the NPV rule, which investments could you choose?
    3. Which is the best investment choice based on NPV (choose one investment only)?
    4. Why did you choose the investment in part b) iii above?
  3. With only the calculations for Payback Period and NPV above, which ONE investment would you recommend for NJF Enterprises and why?

Solutions

Expert Solution

jeff jeffy answered 2 years ago
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