Question

Need help with part d. Thank you.

Consider the following projects: Cash Flows (S) Project 0 -1,100 2,200 -3,250 1,100 1,100 1,100 1,100 1,100 4,100 1,100 1,100 1,100 1,100 a. If the opportunity cost of capital is 11%, which project(s) have a positive NPV? Positive NPV project(s) O ProjectA OProject B O Project c O Projects A and B O Projects A and C Projects B and C O Projects A, B, and C O No project b. Calculate the payback period for each project: (Round your answers to 2 decimal places. If a project never pays back, enter "o".) Project A Project B Project C 1 year(s) 2 year(s) 3.95 year(s) c. Which project(s) would a firm using the payback rule accept if the cutoff period were three years? Project(s) accepted d. Calculate the discounted payback for each project. (Do not round intermediate calculations. Round your answers to 2 decimal places. If a project never pays back, enter "O") Projects A and B # Project A Project B Project C 0 year(s) 2.29 year(s) 4.39 year(s)

Answer 1

CALCULATION OF THE SIMPLE PAYBACK PERIOD OF THE PROJECT A
Years	Cash Flows	PVF of $ 1 @ 11 %	Present Value	Cumulative Cash Flow
0	-$1,100	1.00000	-$1,100.00	-$1,100.00
1	$1,100	0.90090	$990.99	-$109.01
2	$0	0.81162	$0.00	-$109.01
3	$0	0.73119	$0.00	-$109.01
4	$0	0.65873	$0.00	-$109.01
5	$0	0.59345	$0.00	-$109.01
Total
	Total discounted cash flow is negative so there is no or 0 pay back period
CALCULATION OF THE SIMPLE PAYBACK PERIOD OF THE PROJECT B
Years	Cash Flows	PVF of $ 1 @ 11 %	Present Value	Cumulative Cash Flow
0	-$2,200	1.00000	-$2,200.00	-$2,200.00
1	$1,100	0.90090	$990.99	-$1,209.01
2	$1,100	0.81162	$892.78	-$316.22
3	$4,100	0.73119	$2,997.88	$2,681.66
4	$1,100	0.65873	$724.60	$3,406.26
5	$1,100	0.59345	$652.80	$4,059.06
Total
In the 3rd year we recover our all money , but full 3rd year is not required for this
so we can caluclate the exact period of payback
Payback Period = 2 Years+		$316.22	"/"By	$2,997.88
Payback Period = 2 Years+		0.11
Payback Period = 2.11 Years
CALCULATION OF THE SIMPLE PAYBACK PERIOD OF THE PROJECT C
Years	Cash Flows	PVF of $ 1 @ 11 %	Present Value	Cumulative Cash Flow
0	-$3,250	1.00000	-$3,250.00	-$3,250.00
1	$1,100	0.90090	$990.99	-$2,259.01
2	$1,100	0.81162	$892.78	-$1,366.22
3	$0	0.73119	$0.00	-$1,366.22
4	$1,100	0.65873	$724.60	-$641.62
5	$1,100	0.59345	$652.80	$11.18
Total
In the 5th year we recover our all money , but full 5th year is not required for this
so we can caluclate the exact period of payback
Payback Period = 4 Years+		$641.62	"/"By	$652.80
Payback Period = 4 Years+		0.98
Payback Period = 4.98 Years