Question

Maxwell Software, Inc., has the following mutually exclusive projects.

Year		Project A		Project B
0		–$30,000		–$33,000
1		17,000		18,000
2		13,500		12,000
3		3,900		13,500

a-1.	Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

	Payback period
Project A	years
Project B	years

a-2.	Which, if either, of these projects should be chosen?
	Project A Project B Both projects Neither project

  

b-1.	What is the NPV for each project if the appropriate discount rate is 15 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	NPV
Project A	$
Project B	$

  

b-2.	Which, if either, of these projects should be chosen if the appropriate discount rate is 15 percent?
	Project A Project B Both projects Neither project

Answer 1

Solution :

a-1.

The Payback period of Project A is = 1.963 years

The Payback period of Project B is = 2.222 years

a-2.

Project A which has a lower payback period should be chosen

b-1.

The Net Present Value of Project A is = - $ 2,445.14

The Net Present Value of Project B is = $ 602.37

b-2.

Project B which has a positive Net Present Value should be chosen

Please find the attached screenshots of the excel sheet containing the detailed calculation for the solution.