Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$298,120 –$14,710 1 28,600 4,318 2 54,000...

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Finance

Consider the following two mutually exclusive projects:

Year Cash Flow (A) Cash Flow (B)
0 –$298,120        –$14,710
1 28,600        4,318
2 54,000        8,021
3 55,000        13,322
4 425,000        8,341

Whichever project you choose, if any, you require a 6 percentreturn on your investment.
a. What is the payback period for ProjectA?

b. What is the payback period for ProjectB?
c. What is the discounted payback period forProject A?
d. What is the discounted payback period forProject 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 ProjectA?
j. What is the profitability index for ProjectB?

Answer & Explanation Solved by verified expert

3.7 Ratings (597 Votes)

a Year Cash flow stream Cumulative cash flow 0 298120 298120 1 28600 269520 2 54000 215520 3 55000 160520 4 425000 264480 Payback period is the time by which undiscounted cashflow cover the intial investment outlay this is happening between year 3 and 4 therefore by interpolation payback period 3 0160520264480160520 338 Years b Project Year Cash flow stream Cumulative cash flow 0 14710 See Answer

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Consider the following two mutually exclusive projects: YearCash Flow (A)Cash Flow (B)0–$298,120 –$14,710 128,600 4,318 254,000 8,021 355,000 13,322 4425,000 8,341 Whichever project you choose, if any, you require a 6 percentreturn on your investment.a. What is the payback period for ProjectA? b. What is the payback period for ProjectB?c. What is the discounted payback period forProject A?d. What is the discounted payback period forProject 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 ProjectA?j. What is the profitability index for ProjectB?

Year	Cash Flow (A)	Cash Flow (B)
0	–$298,120	–$14,710
1	28,600	4,318
2	54,000	8,021
3	55,000	13,322
4	425,000	8,341