Question

Chapter 5

Question 6 (of 7) 6. value: 2.00 points Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber the discount rate for both projects is 11 percent. 0 -$1.740,000 S70.000 395,000 640,000 754,000 398,000 1,104,000 908,000 a. What is the payback peniod for both projects? (0o not round Intermediate calculationa. Round your answers to 2 decimal places, e.g, 32.16.) Payback perlod Dry Prepeg Solvent Prepeg years years b. What is the NPV for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.) NPV Dry Prepeg Solvent Prepeg c. What is the IRR for both projects? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16) IRR Dry Prepeg Solvent Prepeg d. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) Incremental IRR

Answer 1

(a) Payback Period where after tax cash flows are equal each year = $\frac{Initial Investment}{After-Tax Annual Cash Inflows}$

But where after tax cash inflows are unequal, the cumulative after tax cash inflows are calculated and results are summed until the total is equal to the initial cash investment. Hence, according to question,

(b) NPV of both the projects

(c) Interpolating we get, IRR = $28 percent +\frac{36,234.44}{(36234.44 +32749.54)}*3 percent$

= 29.58 %

Interpolating we get, IRR = $37 percent +\frac{14091.29}{(14091.29 +16282.80)}*3 percent$

= 38.39 %

(d) Interpolating we get, IRR = $20 percent +\frac{12962.96}{(12962.96 +12741.68)}*2 percent$

= 21%