Question

Q) A firm has a WACC of 14.49% and is deciding between two mutually exclusive projects. Project A has an initial investment of $60.09. The additional cash flows for project A are: year 1 = $19.19, year 2 = $38.50, year 3 = $47.11. Project B has an initial investment of $70.51. The cash flows for project B are: year 1 = $54.40, year 2 = $48.97, year 3 = $20.74. Calculate the Following:

1)payback period for Project A

2)Payback period for Project B

3)NPV for project A

4) NPV for project B

Answer 1

ans 1 & 2
				Cumulative cash flow
year	Project A	Project B		Project A	Project B
0	-60.09	-70.51		-60.09	-70.51
1	19.19	54.4		-40.9	-16.11
2	38.5	48.97		-2.4	32.86
3	47.11	20.74		44.71	53.6
Payback period
A	=2+(2.4/47.11)		2.05	year
B	=1+(16.11/48.97)		1.33	year
ans 3 &4
year	Project A	Project B	PVIF @ 14.49%	present value A	present value B
0	-60.09	-70.51	1.0000	(60.09)	(70.51)
1	19.19	54.4	0.8734	16.76	47.52
2	38.5	48.97	0.7629	29.37	37.36
3	47.11	20.74	0.6663	31.39	13.82
				17.43	28.18
NPV A	17.43
NPV B	28.18