( Time-disparity problem ) The State Spartan Corporation is considering two mutually exclusive projects. The free...

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( Time-disparity problem ) The State Spartan Corporation isconsidering two mutually exclusive projects. The free cash flowsassociated with these projects are shown in the popup window:
PROJECT A
PROJECT B
Initial outlay
? $70,000
? $70,000
Inflow year 1
19,625
0
Inflow year 2
19,625
0
Inflow year 3
19,625
0
Inflow year 4
19,625
0
Inflow year 5
19,625
120,000
The required rate of return on these projects is 9 percent.
A. What is each project's payback period?
B. What is each project's NPV ?
C. What is each project's IRR ?
D. What has caused the ranking conflict?
E. Which project should be accepted? Why?

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3.9 Ratings (433 Votes)

aProject A Payback period full years until recovery unrecovered cost at the start of the yearcash flow during the year 3 years 70000 58875 70000 3 years 01589 316 years Project B Payback period 4 years 120000 70000 120000 4 years 5000070000 4 years 07143 471 years bProject A Net present value is solved here using a financial calculator The steps to solve on the financial calculator Press the CF button CF0 70000 It is entered with a negative sign since it is a cash outflow Cash flow for all the years should be See Answer

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Transcribed Image Text

( Time-disparity problem ) The State Spartan Corporation isconsidering two mutually exclusive projects. The free cash flowsassociated with these projects are shown in the popup window:PROJECT APROJECT BInitial outlay? $70,000? $70,000Inflow year 119,6250Inflow year 219,6250Inflow year 319,6250Inflow year 419,6250Inflow year 519,625120,000The required rate of return on these projects is 9 percent.A. What is each project's payback period?B. What is each project's NPV ?C. What is each project's IRR ?D. What has caused the ranking conflict?E. Which project should be accepted? Why?

	PROJECT A	PROJECT B
Initial outlay	? $70,000	? $70,000
Inflow year 1	19,625	0
Inflow year 2	19,625	0
Inflow year 3	19,625	0
Inflow year 4	19,625	0
Inflow year 5	19,625	120,000