Question

Consider the following two mutually exclusive projects:

Year	Cash Flow (A)		Cash Flow (B)
0	–$	426,000	–$	40,500
1		43,500		20,500
2		62,500		13,200
3		79,500		19,100
4		541,000		15,900

  
The required return on these investments is 12 percent.

a. What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	Payback period
Project A	years
Project B	years

b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
  

	Net present value
Project A	$
Project B	$

  
c. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

	Internal rate of return
Project A		%
Project B		%

d. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

	Profitability index
Project A
Project B

e. Based on your answers in (a) through (d), which project will you finally choose?

(Click to select)Project BProject A

rev: 04_08_2017_QC_CS-85575

Answer 1

a) Payback period

b) NPV

c) IRR

d) Profitability Index

e) I will select project B as it has higher IRR and lower Payback period.