Question: Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 $ 340,000 $ 51,500 1 55,000 25,000 2 75,000 23,000
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 $ 340,000 $ 51,500 1 55,000 25,000 2 75,000 23,000 3 75,000 20,500 4 450,000 15,600 Whichever project you choose, if any, you require a 16 percent return on your investment.
| Consider the following two mutually exclusive projects: |
| Year | Cash Flow (A) | Cash Flow (B) | |||||
| 0 | $ | 340,000 | $ | 51,500 | |||
| 1 | 55,000 | 25,000 | |||||
| 2 | 75,000 | 23,000 | |||||
| 3 | 75,000 | 20,500 | |||||
| 4 | 450,000 | 15,600 | |||||
| Whichever project you choose, if any, you require a 16 percent return 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.) |
| Payback period | ||
| Project A | years | |
| Project B | years | |
| a-2 | If you apply the payback criterion, which investment will you choose? | ||||
|
| 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.) |
| Discounted payback period | ||
| Project A | years | |
| Project B | years | |
| b-2 | If you apply the discounted payback criterion, which investment will you choose? | ||||
|
| 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.) |
| NPV | ||
| Project A | $ | |
| Project B | $ | |
| c-2 | If you apply the NPV criterion, which investment will you choose? | ||||
|
| 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.) |
| IRR | ||
| Project A | % | |
| Project B | % | |
| d-2 | If you apply the IRR criterion, which investment will you choose? | ||||
|
| 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.) |
| Profitability index | ||
| Project A | ||
| Project B | ||
| e-2 | If you apply the profitability index criterion, which investment will you choose? | ||||
|
| f. | Based on your answers in (a) through (e), which project will you finally choose? |
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
Study Help