Question

Tri Star, Inc., has the following mutually exclusive pprojects

Year	project A	project B
0	-13600	-9000
1	8200	3700
2	6800	3200
3	2100	5600

A Calculate the payback period for each project. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Payback Period:

B If appropriate rate is 15 percent what is the npv for each project ( do not round intermediate calculations.Round your answers to 2 decimal places

Answer 1

A

For project A payback period is = 1 year + 5,400/6,800 = 1.79 years

Year	Cash flow	Capital recovery to date	Amount to be recovered
0	-13,600
1	8,200	8,200	5,400
2	6,800	15,000	-
3	2,100	17,100	-

For project B payback period = 2 years + 2,100/5,600 = 2.38 years

Year	Cash flow	Capital recovery to date	Amount to be recovered
0	-9,000
1	3,700	3,700	5,300
2	3,200	6,900	2,100
3	5,600	12,500	-

B

NPV of project A

Year	Cash flow	Discount factor	Present value
0	(13,600)	1	(13,600.00)
1	8,200	0.869565	7,130.43
2	6,800	0.756144	5,141.78
3	2,100	0.657516	1,380.78
NPV			53.00

NPV of project B:

Year	Cash flow	Discount factor	Present value
0	(9,000)	1	(9,000.00)
1	3,700	0.869565	3,217.39
2	3,200	0.756144	2,419.66
3	5,600	0.657516	3,682.09
NPV			319.14