Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$218,006 –$15,742 1 28,000 5,304 2 57,000...

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Finance

Consider the following two mutually exclusive projects:

Year Cash Flow (A) Cash Flow (B)
0 –$218,006        –$15,742
1 28,000        5,304
2 57,000        8,103
3 56,000        13,294
4 392,000        9,377

Whichever project you choose, if any, you require a 6 percentreturn on your investment.
Required:
(a) What is the payback period for Project A?
  (Click to select)   3.04years   3.1 years   3.29years   3.36 years   3.2 years

(b) What is the payback period for Project B?
  (Click to select)   2.24years   2.18 years   2.07years   2.11 years   2.28 years

(c) What is the discounted payback period for Project A?
  (Click to select)   3.47years   3.3 years   3.2years   3.14 years   3.4 years

(d) What is the discounted payback period for Project B?
  (Click to select)   2.2years   2.43 years   2.39years   2.25 years   2.32 years

(e) What is the NPV for Project A?
  (Click toselect)   $205,825.37   $216,658.29   $227,491.2   $210,158.54   $223,158.04

(f) What is the NPV for Project B ?
  (Click toselect)   $14,309.64   $15,062.78   $14,610.89   $15,514.66   $15,815.91

(g) What is the IRR for Project A?
  (Click toselect)   28.5%   30%   31.5%   29.1%   30.9%
(h) What is the IRR for Project B?
  (Click toselect)   38%   39.14%   36.86%   36.1%   39.9%

(i) What is the profitability index for Project A?
  (Click toselect)   2.054   1.994   1.934   1.894   2.094

(j) What is the profitability index for Project B?
  (Click toselect)   2.016   2.055   1.898   1.859   1.957

Answer & Explanation Solved by verified expert

3.6 Ratings (518 Votes)

a Project A Year Cash flow stream Cumulative cash flow 0 218006 218006 1 28000 190006 2 57000 133006 3 56000 77006 4 392000 314994 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 See Answer

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Transcribed Image Text

Consider the following two mutually exclusive projects: YearCash Flow (A)Cash Flow (B)0–$218,006 –$15,742 128,000 5,304 257,000 8,103 356,000 13,294 4392,000 9,377 Whichever project you choose, if any, you require a 6 percentreturn on your investment.Required:(a)What is the payback period for Project A? (Click to select) 3.04years 3.1 years 3.29years 3.36 years 3.2 years (b)What is the payback period for Project B? (Click to select) 2.24years 2.18 years 2.07years 2.11 years 2.28 years(c)What is the discounted payback period for Project A? (Click to select) 3.47years 3.3 years 3.2years 3.14 years 3.4 years(d)What is the discounted payback period for Project B? (Click to select) 2.2years 2.43 years 2.39years 2.25 years 2.32 years(e)What is the NPV for Project A? (Click toselect) $205,825.37 $216,658.29 $227,491.2 $210,158.54 $223,158.04(f)What is the NPV for Project B ? (Click toselect) $14,309.64 $15,062.78 $14,610.89 $15,514.66 $15,815.91 (g)What is the IRR for Project A? (Click toselect) 28.5% 30% 31.5% 29.1% 30.9%(h)What is the IRR for Project B? (Click toselect) 38% 39.14% 36.86% 36.1% 39.9%(i)What is the profitability index for Project A? (Click toselect) 2.054 1.994 1.934 1.894 2.094(j)What is the profitability index for Project B? (Click toselect) 2.016 2.055 1.898 1.859 1.957

Year	Cash Flow (A)	Cash Flow (B)
0	–$218,006	–$15,742
1	28,000	5,304
2	57,000	8,103
3	56,000	13,294
4	392,000	9,377

(a)	What is the payback period for Project A?

	(Click to select) 3.04years 3.1 years 3.29years 3.36 years 3.2 years

(b)	What is the payback period for Project B?

	(Click to select) 2.24years 2.18 years 2.07years 2.11 years 2.28 years

(c)	What is the discounted payback period for Project A?

	(Click to select) 3.47years 3.3 years 3.2years 3.14 years 3.4 years

(d)	What is the discounted payback period for Project B?

	(Click to select) 2.2years 2.43 years 2.39years 2.25 years 2.32 years

(e)	What is the NPV for Project A?

	(Click toselect) $205,825.37 $216,658.29 $227,491.2 $210,158.54 $223,158.04

(f)	What is the NPV for Project B ?

	(Click toselect) $14,309.64 $15,062.78 $14,610.89 $15,514.66 $15,815.91

(g)	What is the IRR for Project A?

	(Click toselect) 28.5% 30% 31.5% 29.1% 30.9%

(h)	What is the IRR for Project B?

	(Click toselect) 38% 39.14% 36.86% 36.1% 39.9%

(i)	What is the profitability index for Project A?

	(Click toselect) 2.054 1.994 1.934 1.894 2.094

(j)	What is the profitability index for Project B?

	(Click toselect) 2.016 2.055 1.898 1.859 1.957