Homework SourseThe required return on these investments is 15 percent What
The required return on these investments is 15 percent.
What is the payback period for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g.,32.16).)
What is the IRR for each project? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
What is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 3 decimal places (e.g., 32.161).)
| Consider the following two mutually exclusive projects: |
Solution
a)
Pay back period of A = 3.39
Pay back period of B= 2.05
NPV of A = 30786.88
NPV of B= 11821.31
IRR of A = 18.15%
IRR of B = 26.89%
Profitability index of A = NPV/ initial invetment + 1= 1.09
Profitability index of B = NPV/ initial invetment + 1= 1.22
e) Based on Payback period project B is better
Based On NPV project A is better.
Based on IRR project B is better
Based on PI project B is better
Best of Luck. God Bless
| Year | 0 | 1 | 2 | 3 | 4 |
| Cash Flow (A) | -330000 | 44000 | 60000 | 65000 | 410000 |
| Cumulative cash flows | -330000 | -286000 | -226000 | -161000 | 249000 |
| Pay back Period = | 3.39 | Year before positive cumulative cash flows + Cumulative Cash flow of Year3 /Cash flow of 4 | |||
| Year | 0 | 1 | 2 | 3 | 4 |
| Cash Flow (B) | -53000 | 29000 | 23000 | 19000 | 17000 |
| Cumulative cash flows | -53000 | -24000 | -1000 | 18000 | 35000 |
| Pay back Period = | 2.05 | Year before positive cumulative cash flows + Cumulative Cash flow of Year2 /Cash flow of 3 |
