Question

4. You Corp, is analyzing two mutually exclusive projects. The free cash flows associated with these projects are as follows. Year Cash Flows Cash Flows -50,000 -50,000 15,625 15,625 15,625 15,625 15,625 100,000 The required rate of return on these projects is 10% A) What s each project's payback period? B) What is each project's NPV? C) What is each project's IRR? D) Which project should be accepted? Why?

Answer 1

	Project 1	Project 2
Payback	3.2	4.5
NPV	9231.04	12092.13
IRR	16.99%	14.87%

Accept Project 2 since it has higher NPV

Workings

Year	Project 1	Cumulative CF	Project 2	Cumulative CF
0	-50000	-50000	-50000	-50000
1	15625	-34375	0	-50000
2	15625	-18750	0	-50000
3	15625	-3125	0	-50000
4	15625	12500	0	-50000
5	15625	28125	100000	50000

AutoSave 01 H D- Book1 - Excel Sign in - 0 : File Home Insert Draw Page Layout Formulas Data Review View Help Comment: Share A X DO Calibri = = Babe 3 6- 27 0 General $ -% Tell me what you want to do Insert 2X Delete - Conditional Format as Cell Format Formatting Table Styles Styles Cells Paste - 10 BIU. . Font - X 48 A A = .A To Project 1 Sort & Find & Filter Select Editing Clipboard Alignment Number c1 fix H Year Project 1 Cumulative CF Project 2 Cumulative CF -50000 =C2 -50000 =E2 1 15625 =D2+C3 =F2+E3 15625 =D3+C4 =F3+E4 15625 D4+C5 =F4+E5 15625 =D5+C6 =F5+E6 15625 =D6+C7 100000 =F6+E7 Project 1 Project 2 Payback =B5-D5/C6 =B6-F6/E7 NPV ENPV(10%,C3:07)+C2 ENPV(10%,E3:E7)+E2 IRR IRR(C2:07) FIRR(E2:E7)