Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$350,000 –$35,000 1 25,000 19,000 2 70,000...

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Finance

Consider the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
0 –$350,000       –$35,000
1 25,000       19,000
2 70,000       11,000
3 70,000       19,000
4 410,000       11,000
The required return on these investments is 12 percent.
Required:
(a)
What is the payback period for each project?(Do not round intermediatecalculations. Round your answers to 2 decimalplaces (e.g., 32.16).)
Payback period
  Project A years
  Project B years
(b)
What is the NPV for each project? (Donot round intermediate calculations. Round youranswers to 2 decimal places(e.g.,32.16).)
Net present value
  Project A $
  Project B $
(c)
What is the IRR for each project? (Donot round intermediate calculations. Enter youranswer as a percentage rounded to 2 decimal places (e.g.,32.16).)
Internal rate of return
  Project A %
  Project B %
(d)
What is the profitability index for each project?(Do not round intermediatecalculations. Round your answersto 3 decimal places (e.g., 32.161).)
Profitability index
  Project A
  Project B
(e) Based only on the projects' NPV and IRR, which project shouldyou finally choose?

Answer & Explanation Solved by verified expert

4.4 Ratings (611 Votes)

Answer a Project A Company will recover 165000 in first 3 years and remaining 185000 in year 4 Payback Period 3 185000410000 Payback Period 345 years Project B Company will recover 30000 in 2 years and remaining 5000 in year 3 Payback Period 2 500019000 Payback Period 226 years Answer b See Answer

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Consider the following two mutually exclusive projects:YearCash Flow (A)Cash Flow (B)0–$350,000 –$35,000 125,000 19,000 270,000 11,000 370,000 19,000 4410,000 11,000 The required return on these investments is 12 percent.Required:(a)What is the payback period for each project?(Do not round intermediatecalculations. Round your answers to 2 decimalplaces (e.g., 32.16).)Payback period Project Ayears Project Byears (b)What is the NPV for each project? (Donot round intermediate calculations. Round youranswers to 2 decimal places(e.g.,32.16).)Net present value Project A$ Project B$ (c)What is the IRR for each project? (Donot round intermediate calculations. Enter youranswer as a percentage rounded to 2 decimal places (e.g.,32.16).)Internal rate of return Project A% Project B% (d)What is the profitability index for each project?(Do not round intermediatecalculations. Round your answersto 3 decimal places (e.g., 32.161).)Profitability index Project A Project B (e)Based only on the projects' NPV and IRR, which project shouldyou finally choose?

Year	Cash Flow (A)	Cash Flow (B)
0	–$350,000	–$35,000
1	25,000	19,000
2	70,000	11,000
3	70,000	19,000
4	410,000	11,000

Required:
(a)	What is the payback period for each project?(Do not round intermediatecalculations. Round your answers to 2 decimalplaces (e.g., 32.16).)