Exercise 11-9 (Algo) Payback period; net present value; unequal cash flows LO P1, P3

Gonzalez Company is considering two new projects with the following net cash flows. The company's-required rate of return on

investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Year

Initial investment

1

2

3

Net Cash Flows

Project 1

Project 2

$ (60,000)

$ (59,500)

20,000

35,000

28,900

15,000

18,500

25,000

a. Compute payback period for each project. Based on payback period, which project is preferred?

b. Compute net present value for each project. Based on net present value, which project is preferred?

Exercise 11-9 (Algo) Payback period; net present value; unequal cash flows LO P1, P3 Gonzalez Company is considering two new projects with the following net cash flows. The company'srequired rate of return or investments is 10\% (PV of \$1. EV of S1. PVA. of \$1, and EVA of \$1) (Use appropriate factor(s) from the tables provided.) a. Compute payback period for each project. Based on payback period, which project is preferred? b. Compute net. present value for each-project. Based on net present value, which project is preferred? Compute payback period for each project. Based on payback period, which project is preferred? (Cumulatlve net cash outflows must be entered with a minus sign. Do not round your intermediate calculations. Round your Payback Period anawer to 2 decimal places.) \begin{tabular}{|l|l|l|l|} \hline & Net Cash Hows, & Present Value Factor & Present Value of Net Cash Flows \\ \hline Project 1 & & & \\ \hline Year 1 & & & \\ \hline Year 2 & & & \\ \hline Year 3 & & \\ \hline Totals \\ \hline Initial investment \\ \hline Net present value & & \\ \hline Project 2 & & \\ \hline Year 1 & & \\ \hline Year 2 & & \\ \hline Year 3 & & \\ \hline Totals \\ \hline Initial investment & & \\ \hline Net present value & & \\ \hline Based on net present value; which project is preferred? \\ \hline \end{tabular}