PROFITABILITY INDEX

PROPOSAL 1 = 1.62

PROPOSAL 2 = 0.998

PROPOSAL 1 IS BETTER

QUESTION 12.

PAYBACK PERIOD

PROPOSAL 1 = 1.92 YEARS

PROPOSAL 2 = 3.12 YEARS

PROPOSAL 1 IS BETTER

QUESTION 13

NPV

PROPOSAL 1 = 24971.75

PROPOSAL 2 = -149.45

PROPOSAL 1 IS BETTER

  

QUESTION 14

DISCOUNTED PAYBACK PERIOD

PROPOSAL 1 = 2.21 YEARS

PROPOSAL 2 = CANNOT BE DETERMINED

PROPOSAL 1 IS BETTER

QUESTION 15

IRR

PROPOSAL 1 = 39.38%

PROPOSAL 2 = 11.90%

PROPOSAL 1 IS BETTER
 

1. Muffins co. is considering to modernize its production facilities and it has two proposals under consideration. The expected cash flows associated with these projects is as follows.  The discount rate associated with both the projects is 12%. Write that which proposal is    better on the basis of  IRR. Write only 1 or 2

   Years	Proposal 1- $	Proposal 2- $
   0	(40,000)	(64000)
   1	18000	10000
   2	24000	32000
   3	32000	19000
   4	11000	25000

PROPOSAL 1 CASH FLOWS AMOUNT PV FACTOR @12% PV OF CASH FLOWS YEAR O (40000.00) -40000 YEAR 1 18000.00 0.893 16071.43 YEAR 2 24000.00 0.797 19132.65 YEAR 3 32000.00 0.712 22776.97 YEAR 4 11000.00 0.636 6990.70 ROR 12.00% NPV = 24971.74843 Discounted payback period = 2.21 YEARS =PAYBACK AT DISCOUNT RATE pay back period = PI = 1.92 YEARS =NO. OF YEARS TAKEN TO EARN THE COST INCURRED 1.62 =NPV/CASH OUTFLOW IRR = 39.38% =IRR(VALUES)