Question

Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$ 344,000 –$ 49,000 1 51,000 24,600 2 71,000 22,600 3 71,000 20,100 4 446,000 15,200 Whichever project you choose, if any, you require a 15 percent return on your investment. a-1 What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Payback period Project A years Project B years a-2 If you apply the payback criterion, which investment will you choose? Project A Project B b-1 What is the discounted payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Discounted payback period Project A years Project B years b-2 If you apply the discounted payback criterion, which investment will you choose? Project A Project B c-1 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 Project A $ Project B $ c-2 If you apply the NPV criterion, which investment will you choose? Project A Project B d-1 What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) IRR Project A % Project B % d-2 If you apply the IRR criterion, which investment will you choose? Project A Project B e-1 What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Profitability index Project A Project B e-2 If you apply the profitability index criterion, which investment will you choose? Project A Project B f. Based on your answers in (a) through (e), which project will you finally choose?

Answer 1

	A	B	Select
Payback	3.34	2.09	B (Lower payback)
DPB	3.68	2.63	B (Lower discounted payback)
NPV	55719.63	11386.88	A (Higher NPV)
IRR	20.43%	27.05%	B (Higher IRR)
PI	1.16	1.23	B (Higher PI)

Finally select Project A since it has higher NPV.

Year	A	Cumulative CF	DCF	Cumulative DCF	B	Cumulative CF	DCF	Cumulative DCF
0	-344000	-344000	-344000.00	-344000.00	-49000	-49000	-49000.00	-49000.00
1	51000	-293000	45535.71	-298464.29	24600	-24400	21964.29	-27035.71
2	71000	-222000	56600.77	-241863.52	22600	-1800	18016.58	-9019.13
3	71000	-151000	50536.40	-191327.12	20100	18300	14306.78	5287.65
4	446000	295000	283441.06	92113.94	15200	33500	9659.87	14947.53

Workings

AutoSave Of Book1- Excel Sign in Comments Share File Home Formulas Review View Help OTell me what you want to do Insert Draw Page Layout Data Σ X Insert A A Calibri 10 General Delete Conditional Format as Sort& Find & Filter Select Cell Paste A в I B I U Format - T T T Formatting Table Styles Clipboard Font Alignment Number Styles Cells Editing г. C1 Year TE A В C D F G H K L Year DCF ED2/1.12 C2 D3/1.12 C3 D4/1.12 C4 D5/1.12 C5 ED6/1,12^C6 A Cumulative CF Cumulative DCF B Cumulative CF DCF Cumulative DCF H2/1.12AC2 12 EH3/1.12 C3 K2+J3 H4/1.12 C4 =K3+J4 EH5/1.12 C5 K4+J5 H6/1.12 C6=K5+J6 2 F2 0 -344000 D2 -49000 H2 G2+F3 1 51000 E2+D3 24600 12+H3 4 2 71000 -Е3+D4 G3+F4 22600 13+H4 5 71000 E4+D5 -G4+F5 2010014+H5 6 1520015+H6 4 446000 E5+D6 G5+F6 7 8 В Select A Payback C5-E5/D6 C5-G5 / F6 9 C4-14/H5 -C4- K4 /15 =NPV(15%, H3 : H6)+H2 IRR(H2:H6) NPV(15%,D3: D6)/-D2 NPV(15%, H3 : H6)/-H2 B (Lower payback) 10 DPB B (Lower discounted payback) A (Higher NPV) 11 NPV(15% , D3: D6)+D2 NPV 12. IRR(D2:D6) IRR B (Higher IRR) B (Higher PI) 13 PI 14 15 16 17 18 19 Sheet3 Sheet4 Sheet5 Sheet6 Sheet7 Sheet8 Sheet9 Sheet10 Sheet11 St... E Ready 100% w ENG х‑ P3 (? 6:44 PM