Question
In: Finance
(a) If management requires projects to have a 3-year payback, would it accept either of the...
(a) If management requires projects to have a 3-year payback, would it accept either of the following two independent projects? Please explain thoroughly the calculations of payback period, by showing precise years of payback. Please show formulas in your calculations. Please do not use excel.
(b) What is the NPV of project B assuming the discount rate is 14%. Please explain thoroughly your calculations. Please show formulas. Please do not use excel.
(c) Sketch the NPV profile for project B. Also indicate the point when the discount rate is 37.01%. Please show thoroughly your calculations. Please explain how to draft a sketch in excel.
| Year | Cash flow (A) | Cash flow (B) |
| 0 | -55,000 | -95,000 |
| 1 | 19,000 | 18,000 |
| 2 | 19,000 | 18,000 |
| 3 | 19,000 | 18,000 |
| 4 | 19,000 | 230,013 |
Solutions
Expert Solution
Solution:-
A. To Calculate Payback Period-
Project A-
PayBack Period = 
PayBack Period = 
PayBack Period = 2.89 years
Project B-
| Payback Period | ||
| Year | Cash Flow | Cummulative Cash Flow |
| 0 | -95000 | |
| 1 | 18000 | 18000 |
| 2 | 18000 | 36000 |
| 3 | 18000 | 54000 |
| 4 | 230013 | 284013 |
Payback Period = 
Payback Period = 
Payback Period = 3.18 years
If management requires projects to have a 3-year payback then Management can only accept project A as its payback period is 2.89 years. Payback period is lower the better.
B. To Calculate Net Present Value when Discount rate is 14%-
Net Present Value = Present Value of cash Inflow - Present Value of cash Outflow
Net Present Value = 
Net Present Value = 
Net Present Value = 
Net Present Value = $15,789.47 + $13,850.42 + $12,149.49 + $1,36,186.16 - $95,000
Net Present Value = $82,975.54
C. To Calculate Net Present Value when Discount rate is 37.01%-
If you have any query related to question then feel free to ask me in a comment.Thanks. Please rate.
jeff jeffy answered 1 year agoRelated Solutions
1. (a) If management requires projects to have a 3-year payback, would it accept either of...
1. (a) If management requires projects to have a 3-year payback,
would it accept either of the following two independent projects?
Explain.
Year 0 1 2 3 4
Cash flows (A) -$55,000 19,000 19,000 19,000 19,000
Cash flows (B) -$95,000 18,000 18,000 18,000 230,013
(b) What is the NPV of project B assuming the discount rate is
14%.
(c) Sketch the NPV profile for project B. Also indicate the
point when the discount rate is 37.01%.
2. A...
If management requires a 3 year payback period, which project would you choose?
(Chapter 11 payback period)
year
Proj A
Proj B
Proj C
0
(1,000)
(10,000)
(5,000)
1
600
5,000
1,000
2
300
3,000
1,000
3
200
3,000
2,000
4
100
3,000
2,000
5
500
3,000
2,000
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$1,400
$1,200
Year 0 1 2 3 4 5 6 Cash Flow -$5,000 $1,200 $2,400 $1,600 $1,600
$1,400 $1,200 ...
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Year
Project A
Project B
0
-10,000
-10,000
1
4,000
4,000
2
4,000
3,000
3
4,000
2,000
4
0
1,000,000
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should the company accept based on the NPV, IRR, MIRR, payback, and
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6. Modified Internal Rate of Return Project A Project B Year Net
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Project A
Project B
1
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20
2
10
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3
15
8
4
20
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1
5
20
2
10
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3
15
8
4
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Round your answers to two decimal places....
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