Question

2 POTENTIAL CAPITAL PROJECTS HAVE THE FOLLOWING ESTIMATED CASHFLOWS

                                                            PROJECT 1                            PROJECT 2

YEAR                                                                         CASHFLOW                          CASHFLOW

   1                                                                               $95,000                                   $112,000

   2                                                                               $150,000                                 $95,000

   3                                                                               $1,000                                     $85,000

   4                                                                               $12,000                                   $65,000

   5                                                                               $45,000                                   $10,000

   6                                                                               $198,000                                 $15,000

BOTH PROJECTS HAVE A COST OF $300,000. THE COST OF CAPITAL IS 9.5%

A. CALCULATE THE PAYBACK FOR EACH PROJECT. STATE IF THE PROJECT IS ACCEPTABLE UNDER PAYBACK AND WHY.

B. CALCULATE THE NPV FOR EACH PROJECT. STATE IF THE PROJECT IS ACCEPTABLE UNDER NPV AND WHY.

C. CALCULATE THE IRR FOR EACH PROJECT. STATE IF THE PROJECT IS ACCEPTABLE UNDER IRR AND WHY.

D. CALCULATE THE PI FOR EACH PROJECT. STATE IF THE PROJECT IS ACCEPTABLE UNDER PI AND WHY.

E. STATE WHICH IS THE BEST PROJECT OVERALL AND WHY.

Calculate using a HP 10B-II financial calculator

Answer 1

Solution.>

I have solved this question in Excel. The formula used are written along with the values. If you still have any doubt, kindly ask in the comment section.

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