Question
In: Finance
X-treme Vitamin Company is considering two investments, both of which cost $12,000. The cash flows are...
X-treme Vitamin Company is considering two investments, both of which cost $12,000. The cash flows are as follows:
| Year | Project A | Project B | ||||
| 1 | $ | 13,000 | $ | 12,000 | ||
| 2 | 5,000 | 4,000 | ||||
| 3 | 6,000 | 11,000 | ||||
a-1. Calculate the payback period for Project A
and Project B. (Round your answers to 2 decimal
places.)
b-1. Calculate the net present value for
Project A and Project B. Assume a cost of capital of 8 percent.
(Do not round intermediate calculations and round your
final answers to 2 decimal places.)
Solutions
Expert Solution
| Cash flow | Cumulative Cash flow | Present value | ||||||
| Year | A | B | A | B | PVIF @ 8% | A | B | |
| 0 | -12000 | -12000 | -12000 | -12000 | 1 | (12,000.00) | (12,000.00) | |
| 1 | 13000 | 12000 | 1000 | 0 | 0.92592593 | 12,037.04 | 11,111.11 | |
| 2 | 5000 | 4000 | 6000 | 4000 | 0.85733882 | 4,286.69 | 3,429.36 | |
| 3 | 6000 | 11000 | 12000 | 15000 | 0.79383224 | 4,762.99 | 8,732.15 | |
| 9,086.72 | 11,272.62 | |||||||
| Ans a_1 | ||||||||
| Payback period A = | 12000/13000 | 0.92 | year | |||||
| Payback period B = | 1 | year | ||||||
| Ans b_1 | NPV A = | 9,086.72 | ||||||
| NPV B = | 11,272.62 | |||||||
jeff jeffy answered 1 year agoRelated Solutions
X-treme Vitamin Company is considering two investments, both of which cost $12,000. The cash flows are...
X-treme Vitamin Company is considering two investments, both of
which cost $12,000. The cash flows are as follows:
Year
Project A
Project B
1
$
13,000
$
12,000
2
5,000
4,000
3
6,000
11,000
Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator
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