Question

Consider the following cash flows of two mutually exclusive projects for Spartan Rubber Company. Assume the discount rate for both projects is 8 percent. Year Dry Prepreg 0 -$1,860,000 1 1,116,000 932,000 766,000 Solvent Prepreg $830,000 455,000 760,000 422,000 a. What is the payback period for each project? (Do not round intermediate calculations and found your answers to 2 decimal places, e.g., 32.16.) Dry Prepreg Solvent Prepreg Payback period years years b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) NPV A Dry Prepreg Solvent Prepreg A c. What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decima places, e.g., 32.16.) TRR Dry Prepreg Solvent Prepreg d. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

B9 E PVIF@8% H Simple cumulative cash flows Dry Prepreg | Solvent Prepreg 3 X V fc =IRR(B4:37) A B co Cash flows Year Dry Prepreg Solvent Prepreg Difference A B A-B 0 $ (1,860,000) $ (830,000) $ (1,030,000) 1 $ 1,116,000 $ 455,000 $ 661,000 2 $ 932,000 $ 760,000 $ 172,000 3 $ 766,000 $ 422,000 $ 344,000 4 Present value Dry Prepreg Solvent Prepreg AxC | Bxc (1,860,000.00) $ (830,000.00) $ 1,033,333.33 $ 421,296.30 $ 799,039.78 $ 651,577.50 $ 608,075.50 $ 334,997.21 $ 1.000 $ 0.926 $ 0.857 $ 0.794 $ 5 6 (1,860,000) $ (744,000) $ 188,000 $ 954,000 $ (830,000) (375,000) 385,000 807,000 9 IRR 25.83% 43.40% $ 580,448.61 $ 577,871.01 8.16% NPV (Incremental IRR) Payback period 1.80 1.49 Years Years =1+744000/932000 =1+375000/760000

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