Question

Consider the following two mutually exclusive projects:

  

Year	Cash Flow (A)				Cash Flow (B)
0	–$	358,000			–$	46,000
1		37,000				23,200
2		57,000				21,200
3		57,000				18,700
4		432,000				13,800

  

Whichever project you choose, if any, you require a return of 15 percent on your investment.

  

a-1	What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  

  

a-2	If you apply the payback criterion, which investment will you choose?
	Project A Project B

  

b-1	What is the discounted payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  

  

b-2	If you apply the discounted payback criterion, which investment will you choose?
	Project A Project B

  

c-1	What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  

  

c-2	If you apply the NPV criterion, which investment will you choose?
	Project B Project A

  

d-1	What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

  

  

d-2	If you apply the IRR criterion, which investment will you choose?
	Project A Project B

e-1	What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

  

e-2	If you apply the profitability index criterion, which investment will you choose?
	Project A Project B

f.	Based on your answers in (a) through (e), which project will you finally choose?

Answer 1

a-1)	Project A	3.48
	Project B	2.09
a-2)		Project B
b-1)	Project A	3.99
	Project B	2.80
b-2)		Project B
c-1)	Project A	$    1,749.93
	Project B	$ 10,389.91
c-2)		Project B
d-1)	Project A	15.17%
	Project B	26.79%
d-2)		Project B
e-1)	Project A	1.005
	Project B	1.226
e-2)		Project B
f)		Project B