Question: *Please help - I was able to complete part A with some help, but I need help answering questions B - E. Thank you!!* Projects

*Please help - I was able to complete part A with some help, but I need help answering questions B - E. Thank you!!*

Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 13%. The cash flows for each project are shown in the following table.

Project A Project B
-$130,000.00 -$85,000.00
Initial Investment (CF0)
Year (t) Cash Inflows (CFt)
1 $25,000 $40,000
2 $35,000 $35,000
3 $45,000 $30,000
4 $50,000 $10,000
5 $55,000 $5,000

Question A - Calculate each project's payback period

Project A Project B
Year Cash Flow Stream Cumulative Cash Flow Year Cash Flow Stream Cumulative Cash Flow
0 -130,000 -130,000 0 -85,000 -85,000
1 25,000 -105,000 1 40,000 -45,000
2 35,000 -70,000 2 35,000 -10,000
3 45,000 -25,000 3 30,000 20,000
4 50,000 25,000 4 10,000 30,000
5 55,000 80,000 5 5,000 35,000
Total 80,000 Total 35,000
Payback period (PBP) = Numerical Value of the last year with negative cash flow + (Absolute value of that negative cash flow / Total cash flows of the next year)
Project A = 3+(25,000/50,000) Project B = 2+(10,000/30,000)
3.5 2.33
Years is the payback period for Project A Years is the payback period for Project B

Question B - Calculate the net present value (NPV) for each project.

Question C - Calculate the internal rate of return (IRR) for each project.

Question D - Draw the net present value profiles for both projects on the same set of axes, and discuss any conflict in ranking that may exist between NPV and IRR.

Question E - Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why.

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