Homework SourseConsider the following two mutually exclusive projects Year
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$270,425 –$15,509 1 26,300 4,661 2 53,000 8,034 3 52,000 13,551 4 409,000 9,997 Whichever project you choose, if any, you require a 6 percent return on your investment. (a) What is the payback period for Project A? (b) What is the payback period for Project B? (c) What is the discounted payback period for Project A? (d) What is the discounted payback period for Project B? (e) What is the NPV for Project A? (f) What is the NPV for Project B ? (g) What is the IRR for Project A? (h) What is the IRR for Project B? (i) What is the profitability index for Project A? (j) What is the profitability index for Project B?
Solution
Project A:
a. Payback on A = 3.34 years
discounted payback for A = 3.48 years
NPV = 169,182.64
Profitability index = 1.63
IRR = 22.00%
Project B:
Payback = 2.21 years
Discounted payback = 2.35 years
NPV = 15,334.64
PI = 1.99
IRR = 38.00%
| Discount rate | 6.0000% | ||
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
| (270,425.00) | 0 | (270,425.00) | (270,425.00) |
| 26,300.000 | 1 | 24,811.32 | (245,613.68) |
| 53,000.000 | 2 | 47,169.81 | (198,443.87) |
| 52,000.000 | 3 | 43,660.20 | (154,783.67) |
| 409,000.000 | 4 | 323,966.31 | 169,182.64 |
