Question

Chapter 5

Chrome File Edit View History Bookmarks People Window Help | MmyMUI Marshall University × -Start Here-FN-620-202 1LSign UplCapsin, × ← → C ⓘNot Secure l ezto.rnheducation.com/hrn.tpx.-0.24104864 3304737851548522021795 Maxwell Software, Inc., has the following mutually exclusive projects 0 -$25,000-$28,000 14,50015,500 2,000 3,40011,000 11,000 1 a-1. Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g, 32.161.) Payback period Project A Project B years years a-2. Which, if either, of these projects should be chosen? O Project A O Project B Both projects O Neither project b-1. What is the NPV for each project if the appropriate discount rate is 17 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g, 32.16.) NPV Project A Project B b-2. Which, if either, of these projects should be chosen if the appropriate discount rate is 17 percent? Project A Project B Both projects Neither project

Answer 1

a-1.

Initial Investment for Project A = $25,000

Payback Period for Project A = 1(14,500) + 10500/11000

Payback Period for Project A = 1.95 years

Initial Investment for Project B = $28,000

Payback Period for Project B = 1(15,500) + 1(12,000) + 0..45(500/11000)

Payback Period for Project B = 2.045 years

a-2.

Project A should be chosen as per payback period method because it has low payback period.

b-1.

Discount Rate = 17%

Using NPV calculation,

$NPV = -Initial Investment + \sum_{t=1}^{t} C_{t}/(1+r)^t$

NPV for Project A = -$2,448.33

NPV for Project B = $882.10

b-2.

Project B should be accepted as it's NPV is positive.