Q) A firm has a WACC of 14.49% and is deciding between two mutually exclusive projects....

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Q) A firm has a WACC of 14.49% and is deciding between twomutually exclusive projects. Project A has an initial investment of$60.09. The additional cash flows for project A are: year 1 =$19.19, year 2 = $38.50, year 3 = $47.11. Project B has an initialinvestment of $70.51. The cash flows for project B are: year 1 =$54.40, year 2 = $48.97, year 3 = $20.74. Calculate theFollowing:
1)payback period for Project A
2)Payback period for Project B
3)NPV for project A
4) NPV for project B

Answer & Explanation Solved by verified expert

4.3 Ratings (858 Votes)

ans 1 & 2
				Cumulative cash flow
year	Project A	Project B		Project A	Project B
0	-60.09	-70.51		-60.09	-70.51
1	19.19	54.4		-40.9	-16.11
2	38.5	48.97		-2.4	32.86
3	47.11	20.74		44.71	53.6

Payback period
A	=2+(2.4/47.11)		2.05	year
B	=1+(16.11/48.97)		1.33	year


ans 3 &4

year	Project A	Project B	PVIF @ 14.49%	present value A	present value B
0	-60.09	-70.51	1.0000	(60.09)	(70.51)
1	19.19	54.4	0.8734	16.76	47.52
2	38.5	48.97	0.7629	29.37	37.36
3	47.11	20.74	0.6663	31.39	13.82
				17.43	28.18

NPV A	17.43
NPV B	28.18

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Q) A firm has a WACC of 14.49% and is deciding between twomutually exclusive projects. Project A has an initial investment of$60.09. The additional cash flows for project A are: year 1 =$19.19, year 2 = $38.50, year 3 = $47.11. Project B has an initialinvestment of $70.51. The cash flows for project B are: year 1 =$54.40, year 2 = $48.97, year 3 = $20.74. Calculate theFollowing:1)payback period for Project A2)Payback period for Project B3)NPV for project A4) NPV for project B