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 ago
Next > < Previous

Related 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 If management requires a 3 year payback period, which project would you choose? If the discount rate is 12% and management still requires a 3 year pay...
Consider the following cash flows: A. Payback The company requires all projects to payback within 3...
Consider the following cash flows: A. Payback The company requires all projects to payback within 3 years. Calculate the payback period. Should it be accepted or rejected? B. Discounted Payback Calculate the discounted payback sing a discount rate of 8%. Should it be accepted or rejected? Year 0 1 2 3 4 5 6 Cash Flow -$5,000 $1,200 $2,400 $1,600 $1,600 $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        ...
Evaluate the following projects using the payback method assuming a rule of 3 years for payback....
Evaluate the following projects using the payback method assuming a rule of 3 years for payback. 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
If these two projects are mutually exclusive, which project should the company accept based on the NPV, IRR, MIRR, payback, and discounted payback period for each project?
Considering the following projects.ProjectYear01234ACash flows-$100$35$35$35$35BCash flows-$100$60$50$40$30Project A has WACC = 6.00% while project B has WACC = 8.50%.If these two projects are mutually exclusive, which project should the company accept based on the NPV, IRR, MIRR, payback, and discounted payback period for each project?Would your decision (Your answer from part A) change if these two projects were independent?
Capital Budgeting For the following two projects, determine the 1. Payback Period 2. Discounted Payback 3....
Capital Budgeting For the following two projects, determine the 1. Payback Period 2. Discounted Payback 3. Net Present Value 4. Profitability Index (Benefit-Cost Ratio) 5. Internal Rate of Return 6. Modified Internal Rate of Return Project A Project B Year Net Income Cash Flow Net Income Cash Flow 0 (15,000) (19,000) 1 5,000 6,000 3,000 4,000 2 5,000 6,000 5,000 6,000 3 5000 6,000 7,000 8,000 4 5,000 6,000 11,000 12,000 Risk Index 1.80 .60 The firm’s cost of capital...
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an...
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an up-front expenditure of $24 million. You estimate that the cost of capital is 9% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 20 2 10 10 3 15 8 4 20 6 What is the regular payback period for each of the projects? Round your answers to two decimal places....
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an...
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an up-front expenditure of $22 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 20 2 10 10 3 15 8 4 20 6 What is the regular payback period for each of the projects? Round your answers to two decimal places....
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an...
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an up-front expenditure of $23 million. You estimate that the cost of capital is 9% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 20 2 10 10 3 15 8 4 20 6 What is the regular payback period for each of the projects? Round your answers to two decimal places....
Which of the following is true for a 5-year project with a 3-year payback period? The...
Which of the following is true for a 5-year project with a 3-year payback period? The net present value is negative. The net present value is zero. Initial screening reveals this to be an acceptable project. The net present value is positive.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT