Question

Answer each independent question, (a) through (e), below. a. Project A costs $8,500 and will generate annual after-tax net cash inflows of $3,550 for 5 years. What is the payback period for this investment under the assumption that the cash inflows occur evenly throughout the year? (Round your answer to 2 decimal places.) b. Project B costs $8,500 and will generate after-tax cash inflows of $750 in year 1, $2,250 in year 2, $4,000 in year 3, $3,250 in year 4, and $4,000 in year 5. What is the payback period (in years) for this investment assuming that the cash inflows occur evenly throughout the year? (Round your answer to 2 decimal places.) c. Project C costs $8,500 and will generate net cash inflows of $4,000 before taxes for 5 years. The firm uses straight-line depreciation with no salvage value and is subject to a 20% tax rate. What is the payback period under the assumption that all cash inflows occur evenly throughout the year? (Round your answer to 2 decimal places.) d. Project D costs $8,500 and will generate sales of $5,500 each year for 5 years. The cash expenditures will be $2,250 per year. The firm uses straight-line depreciation with an estimated salvage value of $800 and has a tax rate of 20%. (1) What is the accounting (book) rate of return based on the original investment? (Round your answer to 2 decimal places.) (2) What is the book rate of return based on the average book value? (Round your answer to 2 decimal places.) Use the built-in NPV function in Excel to calculate the amounts for projects a through d. (Round your answers to the nearest whole dollar amount.) e1. What is the NPV of project A? Assume that the firm requires a minimum after-tax return of 9% on investment. e2. What is the NPV of project B? Assume that the firm requires a minimum after-tax return of 9% on investment. e3. What is the NPV of project C? Assume that the firm requires a minimum after-tax return of 9% on investment. e4. What is the NPV of project D? Assume that the firm requires a minimum after-tax return of 9% on investment. years a. b. years years Payback period Payback period Payback period Book rate of return Book rate of return NPV of Project A NPV of Project B NPV of Project C NPV of Project D c. d1. d2. e1. e2. e3. e4. %

Answer 1

B18 ДА В C D E F G H I J year project A project B increment increment cash cash flows al cash flows al cash flows flows $ 3,550 $3,550 $ 750 $ 750 $ 3,550 $ 7,100 $2,250 $3,000 $ 3,550 $ 10,650 $4,000 $7,000 $ 3,550 $ 14,200 $3,250 $ 10,250 $3,550 $ 17,750 $4,000 $14,250 project project D increment cash net cash al cash flows income flows flows $3,540 $3,540 $ 1,368 $ 2,908 $ 3,540 $ 7,080 $ 1,368 $ 2,908 $3,540 $10,620 $ 1,368 $ 2,908 $3,540 $ 14,160 $ 1,368 $ 2,908 $3,540 $ 17,700 $ 1,368 $3,708 years years years di. d2. Payback period Payback period Payback period Book rate of return Book rate of return NPV of Project A NPV of Project B NPV of Project C NPV of Project D 2.39 3.46 2.40 16.09% 29.42% $ 5,308 $ 2,073 $ 5,269 $ 3,331 el. e2. e3. e4.

for formulas and calculations, refer to the image below -

B18 X & fx e4. project A project B project C project D cash flows incremental cash flows cash flows incremental cash flows cash flows incremental cash flows net income cash flows 750 - =E4 3550 3550 3550 3550 3550 =C4 D4+C5 =D5+C6 =D6+C7 =D7+C8 2250 4000 3250 4000 =F4+E5 =F5+E6 =F6+E7 =F7+E8 = (4000*0.8)+(1700*0.2) =G4 =(4000*0.8)+(1700*0.2) =H4+G5 =(4000*0.8)+(1700*0.2) =H5+G6 =(4000*0.8)+(1700*0.2) =H6+G7 =(4000*0.8)+(1700*0.2) =H7+G8 =(5500-2250-1540) *0.8 =14+1540 =(5500-2250-1540)*0.8 =15+1540 =(5500-2250-1540) *0.8 =16+1540 =(5500-2250-1540)*0.8 =17+1540 =(5500-2250-1540)*0.8 =18+1540+800 years years years C. a. Payback period =2+(8500-D5)/(D6-05) b. Payback period =3+(8500-F6)/(F7-F6) Payback period =2+(8500-H5)/(H6-H5) d1. Book rate of return =14/8500 d2. Book rate of return =14/((8500+800)/2) NPV of Project A =NPV(9%,C4:C8)-8500 e2. NPV of Project B =NPV(9%, E4:E8)-8500 NPV of Project C =NPV(9%,G4:68)-8500 e4. NPV of Project D =NPV(9%,14:18)-8500 el. e3.

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