Consider the following two projects: Rate Year YO Y1 Y2 Y3 Y4 Y5 Y6 Y7 Discount...

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Consider the following two projects: Rate Year YO Y1 Y2 Y3 Y4 Y5 Y6 Y7 Discount Project C/F C/F C/F C/F C/F C/F C/F C/F Alpha -79 20 25 30 35 40 N/A N/A Beta -80 25 25 25 25 25 25 25 C/F: Cash Flow 15% 16% Suppose the two projects are mutually exclusive. a) Calculate the payback periods for Alpha and Beta. Which project is better according to the payback rule? b) Calculate the NPVs for Alpha and Beta. Which project is better according to the NPV rule? c) What is your investment decision based on your results in a) and b)? Explain. d) Critically evaluate the investment appraisal rules including NPV, IRR and Payback periods? Consider the following two projects: Rate Year YO Y1 Y2 Y3 Y4 Y5 Y6 Y7 Discount Project C/F C/F C/F C/F C/F C/F C/F C/F Alpha -79 20 25 30 35 40 N/A N/A Beta -80 25 25 25 25 25 25 25 C/F: Cash Flow 15% 16% Suppose the two projects are mutually exclusive. a) Calculate the payback periods for Alpha and Beta. Which project is better according to the payback rule? b) Calculate the NPVs for Alpha and Beta. Which project is better according to the NPV rule? c) What is your investment decision based on your results in a) and b)? Explain. d) Critically evaluate the investment appraisal rules including NPV, IRR and Payback periods?

Answer rating: 100% (QA)

a The payback period is the time it takes for a project to recover its initial investment To calculate the payback period we sum up the cash flows until they exceed the initial investment For Project ... View the full answer