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please show formulas g.    At a cost of capital of 12%, what is the discounted payback period...

please show formulas

g.    At a cost of capital of 12%, what is the discounted payback period for these two projects?
WACC   = 12%
Project A
Time period 0 1 2 3 4 5 6 7
Cash flow -$375 -$300 -$200 -$100 $600 $600 $926 -$200
Disc. cash flow
Disc. cum. cash flow
Intermediate calculation for payback
Payback using intermediate calculations
Project B
Time period 0 1 2 3 4 5 6 7
Cash flow -$575 $190 $190 $190 $190 $190 $190 $0
Disc. cash flow
Disc. cum. cash flow
Intermediate calculation for payback
Payback using intermediate calculations
Discounted Payback using PERCENTRANK Ok because cash flows follow normal pattern.
h.   What is the profitability index for each project if the cost of capital is 12%?
PV of future cash flows for A:
PI of A:
PV of future cash flows for B:
PI of B:

Solutions

Expert Solution

Discounted Payback Period - PROEJCT A

Year

Cash Flows ($)

PVIF at 12%

Discounted Cash Flow ($)

Discounted Cumulative Cash Flow ($)

0

-375.00

1.00000

-375.00

-375.00

1

-300.00

0.89286

-267.86

-642.86

2

-200.00

0.79719

-159.44

-802.30

3

-100.00

0.71178

-71.18

-873.47

4

600.00

0.63552

381.31

-492.16

5

600.00

0.56743

340.46

-151.71

6

926.00

0.50663

469.14

317.43

7

200.00

0.45235

90.47

407.90

Discounted Payback = Years before full recover + (Unrecovered cash inflow at start of the year/cash flow during the year)

= 5 Year + ($151.71 / $469.14)

= 5 Year + 0.32 Years

= 5.32 Years

Discounted Payback Period - PROEJCT B

Year

Cash Flows ($)

PVIF at 12%

Discounted Cash Flow ($)

Discounted Cumulative Cash Flow ($)

0

-575.00

1.00000

-575.00

-575.00

1

190.00

0.89286

169.64

-405.36

2

190.00

0.79719

151.47

-253.89

3

190.00

0.71178

135.24

-118.65

4

190.00

0.63552

120.75

2.10

5

190.00

0.56743

107.81

109.91

6

190.00

0.50663

96.26

206.17

7

0

0.45235

0

206.17

Discounted Payback = Years before full recover + (Unrecovered cash inflow at start of the year/cash flow during the year)

= 3 Year + ($118.65 / $120.75)

= 3 Year + 0.98 Years

= 3.98 Years

Profitability Index (PI)

Profitability Index (PI) – PROJECT A

Profitability Index (PI) = PV of future cash flows for A / Initial Outflow

= [-$267.86 - $159.44 - $71.18 + $381.31 + $340.46 + $469.14 + $90.47] / $375

= $782.90 / $375

= 2.09

Profitability Index (PI) – PROJECT B

Profitability Index (PI) = PV of future cash flows for B / Initial Outflow

= [$169.64 + 151.47 + 135.24 + 120.75 + 107.81 + 96.26 + 0] / $575

= $781.17 / $575

= 1.36

jeff jeffy answered 1 year ago
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