In: Finance
Consider the following two mutually exclusive projects: |
Year | Cash Flow (A) | Cash Flow (B) |
0 | –$237,041 | –$15,140 |
1 | 27,400 | 4,688 |
2 | 53,000 | 8,324 |
3 | 52,000 | 13,986 |
4 | 409,000 | 8,403 |
Whichever project you choose, if any, you require a 6 percent return on your investment. |
Required: |
(a) | What is the payback period for Project A? |
(Click to select)3.42 years3.09 years3.16 years3.26 years3.35 years |
(b) | What is the payback period for Project B? |
(Click to select)2.15 years2.26 years2.09 years2.04 years2.22 years |
(c) | What is the discounted payback period for Project A? |
(Click to select)3.47 years3.2 years3.54 years3.37 years3.27 years |
(d) | What is the discounted payback period for Project B? |
(Click to select)2.21 years2.35 years2.28 years2.17 years2.4 years |
(e) | What is the NPV for Project A? |
(Click to select)$213,784.6$203,604.38$209,712.51$197,496.25$193,424.16 |
(f) | What is the NPV for Project B ? |
(Click to select)$14,335.36$14,637.15$15,089.85$15,542.55$15,844.34 |
(g) | What is the IRR for Project A? |
(Click to select)25.65%27.81%26.19%28.35%27% |
(h) | What is the IRR for Project B? |
(Click to select)40.17%37.83%39%37.05%40.95% |
(i) | What is the profitability index for Project A? |
(Click to select)1.7661.8591.9521.8031.915 |
(j) | What is the profitability index for Project B? |
a)
year | cash flow | Cumulative cash flow |
0 | -237041 | -237041 |
1 | 27400 | -237041+27400= -209641 |
2 | 53000 | -209641+53000=- 156641 |
3 | 52000 | -156641+52000=- 104641 |
4 | 409000 | -104641+409000= 304359 |
Payback period for A= period up to which cumulative cash flow is negative +(cumulative cash flow of that period /cash flow of next period)
= 3 +(104641/409000)
= 3 + .26
= 3.26 years
correct option is " D"
b)
year | cash flow | Cumulative cash flow |
0 | -15140 | -15140 |
1 | 4688 | -15140+4688=- 10452 |
2 | 8324 | -10452+8324= -2128 |
3 | 13986 | -2128+13986= 11858 |
4 | 8403 | 11858+8403= 20261 |
Payback period for B = 2 + (2128/13986)
= 2+ .15
= 2.15 years
correct option is "A"
c)
year | cash flow | PVF@6% | Discounted cash flow =Cash flow *PVF | Cumulative discounted cash flow |
0 | -237041 | 1 | -237041 | -237041 |
1 | 27400 | .94340 | 25849.16 | -237041+25849.16=-211191.84 |
2 | 53000 | .89000 | 47170 | -211191.84+47170= -164021.84 |
3 | 52000 | .83962 | 43660.24 | -164021.84+43660.24= -120361.6 |
4 | 409000 | .79209 | 323964.81 | -120361.6+323964.81= 203603.21 |
Discounted payback period for A = 3 + (120361.61 /323964.81)
= 3 + .37
= 3.37 years
correct option is " D"
d)
year | cash flow | PVF@6% | Discounted cash flow =Cash flow *PVF | Cumulative discounted cash flow |
0 | -15140 | 1 | -15140 | -15140 |
1 | 4688 | .94340 | 4422.66 | -15140+4422.66= -10717.34 |
2 | 8324 | .89000 | 7408.36 | -10717.34+7408.36= -3308.98 |
3 | 13986 | .83962 | 11742.93 | -3308.98+11742.93= 8433.95 |
4 | 8403 | .79209 | 6655.93 | 8433.95+6655.93= 15089.88 |
Discounted payback period fro B= 2+(3308.98/11742.93)
= 2+ .28
=2.28 years
correct option is "C"