Question

In: Finance

Project 1 Payback period = 2 years 9 months NPV = £2,041

 

Project 1

Payback period = 2 years 9 months

NPV = £2,041

APR = 22.08%

Project 2

Payback period = 2 years 10 months

NPV = £3,995

APR = 26.19%

 

Based on the above, which project is best to invest in?

Solutions

Expert Solution

Here, Best method is NPV among APR and Payback period.

 

In case of NPV, We choose project which have higher NPV. So we choose Project B

In case of APR, we choose higher rate , therefore again we choose Project B.

In case of payback period, we choose lower one. So we choose Project A.

 

Note:- we only use Payback period when NPV is not giving. Here, NPV is giving we go with NPV decision. Therefore we choose Project B.

 

We choose Project B.

 


We choose Project B.

Related Solutions

In Project Selection models : Define and explain each : 1 - Financial(NPV,Payback period) 2 -...
In Project Selection models : Define and explain each : 1 - Financial(NPV,Payback period) 2 - Non-financial(weight score matrix)
1.     (1 % ) Estimate the NPV, ROI, and payback period for the XYZ project using...
1.     (1 % ) Estimate the NPV, ROI, and payback period for the XYZ project using the information below. Your results should look similar to Figures 2-4 through 2-6 on pp. 46-47. Use the “business case financials” template. Type your name on the spreadsheet, and type any comments/answers directly on the spreadsheet. Be sure to change the formatting to display one decimal place for the discount rate and ROI and properly note the year of payback (not Year X). a.    ...
REQUIRED 5.1 Calculate the Payback Period of Project G (expressed in years, months and days). (3)...
REQUIRED 5.1 Calculate the Payback Period of Project G (expressed in years, months and days). (3) 5.2 Calculate the Accounting Rate of Return (on average investment) of Project F (expressed to two decimal places). (5) 5.3 Calculate the Net Present Value of Project F (with amounts rounded off to the nearest Rand). (4) 5.4 Calculate the Internal Rate of Return (IRR) of Project G (expressed to two decimal places). (6) 5.5 Comment on the IRR calculated above. (2) INFORMATION Nascar...
IN EXCEL< SHOW THE FORMULAS > Determine the Payback period, NPV and IRR for both project...
IN EXCEL< SHOW THE FORMULAS > Determine the Payback period, NPV and IRR for both project A and B (show work). Which Project would you select and why? Be specific. Project A will require an initial investment of $ 200,000 and Project B will require and initial investment of $ 325,000. The cost of capital for both projects is 12%. The cash inflows for the next 5 years are listed below: Project A Project B 0 ($200,000) ($325,000) 1 $50,000...
The NPV and payback period Suppose you are evaluating a project with the cash inflows shown...
The NPV and payback period Suppose you are evaluating a project with the cash inflows shown in the following table. Your boss has asked you to calculate the project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. The project's annual cash flows are: Year Cash Flow Year 1 $400,000 Year 2 600,000 Year 3 500,000 Year 4 475,000 If the project’s desired rate...
. For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For...
. For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For each capital budgeting decision tool, indicate if the project should be accepted or rejected, assuming that each project is independent of the others. Important Note: The venture capital folks have a firm maximum payback period of four years.          Project A= Required rate of Return= 16.30% Project B= R= 12.50% Project C= R= 15.35% Project D= R= 17.25%      Expected cash flows for the four...
A project pays $500 at t=1 and 700 at t=7. Compute the NPV, IRR, Payback period...
A project pays $500 at t=1 and 700 at t=7. Compute the NPV, IRR, Payback period of the project if it costs $700 today. Assume cost of capital is 10% where required.
Calculate the Payback Period and Discounted Payback Period for the following project: 1. An initial investment...
Calculate the Payback Period and Discounted Payback Period for the following project: 1. An initial investment of $20,000 with expected after-tax operating cash flows of $125,000 per year for each of the next 3 years. However, in preparation for its termination at the end of year 3, an additional investment of $350,000 must be made at the end of Year 2. Please show all work in excel.
(Payback ​period, NPV,​ PI, and IRR calculations​) You are considering a project with an initial cash...
(Payback ​period, NPV,​ PI, and IRR calculations​) You are considering a project with an initial cash outlay of ​$90,000 and expected free cash flows of ​$28,000 at the end of each year for 5 years. The required rate of return for this project is 6 percent. a. What is the​ project's payback​ period? b. What is the​ project's NPV​? c. What is the​ project's PI​? d. What is the​ project's IRR​?
For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For each...
For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For each capital budgeting decision tool, indicate if the project should be accepted or rejected, assuming that each project is independent of the others. Important Note: The venture capital folks have a firm maximum payback period of four years. Risk free rate = 1.10%, MRP = 9.5%, Required return = 14.40% Yes excel is fine Expected cash flows for the four potential projects that Avalon is...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT