Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$275,196 –$15,775 1 26,300 5,356 2 55,000...

4.0 Ratings (415 Votes)

(a)		3.37 Years
(b)		2.14 Years
(c)		3.52 Years
(d)		2.27 Years
(e)		$ 1,45,739.78
(f)		$ 15,487.23
(g)		20%
(h)		39%
(i)		1.53
(j)		1.982

Working:		Project A			Project B
Year	Discount factor	Cash flow	Cumulative Cash flow	Present value of cash flow	Cumulative Present value of cash flow	Cash flow	Cumulative Cash flow	Present value of cash flow	Cumulative Present value of cash flow
a	b=1.06^-a	c	x	d=b*c	e	f	y	g=b*f	h
0	1.0000	$ -2,75,196.00	$ -2,75,196.00	$ -2,75,196.00	$ -2,75,196.00	$ -15,775.00	$ -15,775.00	$ -15,775.00	$ -15,775.00
1	0.9434	26,300.00	-2,48,896.00	$ 24,811.32	-2,50,384.68	5,356.00	-10,419.00	5,052.83	-10,722.17
2	0.8900	55,000.00	-1,93,896.00	$ 48,949.80	-2,01,434.88	8,583.00	-1,836.00	7,638.84	-3,083.33
3	0.8396	55,000.00	-1,38,896.00	$ 46,179.06	-1,55,255.81	13,565.00	11,729.00	11,389.44	8,306.11
4	0.7921	3,80,000.00	2,41,104.00	$ 3,00,995.59	1,45,739.78	9,066.00	20,795.00	7,181.12	15,487.23

IRR		=irr(C4:C8)				=irr(G4:G8)
		20.00%				39.00%

Payback of :
Project A	=	3+(138896/380000)	=	3.37
Project B	=	2+(1836/13565)	=	2.14

Discounted payback of:
Project A	=	3+(155255.81/300995.59)	=	3.52
Project B	=	2+(3083.33/11389.44)	=	2.27

Profitability index of:

Project A	=	Present value of cash inflow /Cost of project
	=	(275196+145739.78)/275196
	=	1.530

Project B	=	Present value of cash inflow /Cost of project
	=	(15775+15487.23)/15775
	=	1.982

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Transcribed Image Text

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

	(Click to select) 3.47 years 3.2years 3.26 years 3.37 years 3.53years

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

	(Click to select) 2.07 years 2.14years 2.2 years 2.03 years 2.24years

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

	(Click to select) 3.34 years 3.52years 3.62 years 3.41 years 3.69years

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

	(Click to select) 2.34 years 2.38years 2.16 years 2.2 years 2.27years

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

	(Click toselect) 1.575 1.606 1.453 1.53 1.484

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

	(Click toselect) 2.081 1.883 1.982 1.922 2.041