Question

1 Solvent Prepreg -$ 775,000 Dry Prepreg -$1,750,e00 1,105,000 910,000 755,000 Year 400,000 650,e00 400,000 3 nts a. What is the payback period for each project? (Do not round intermediate celculations and round your answers to 2 decimal places, e.g., 32.16.) Payback period 1.66 years Dry Prepreg 2.13 years Solvent Prepreg b. What is the NPV for each project? (Do not round intermediate calculations and round your enswers to 2 decimal places, e.g., 32.16.) NPV S 544447.66 Dry Prepreg $ 385030.98 Solvent Prepreg c. 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 %\ 31.21 Dry Prepreg 38.82 Solvent Prepreg d. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 23.48 % Incremental IRR

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Answer 1

a). Payback period for Dry Prepreg = 1.71 years; for Solvent Prepreg = 1.58 years

Dry Prepreg Formula Year (n) 0 | Cash Flow (CF) -1750000 Cumulative Cash Flow (CCF) | -1750000 Payback period (in years) 1 1105000 -645000 2 910000 265000 1.71 3 755000 1020000 CCFn-1 + CFn 1 + (-CCF1/CF2) Solvent Prepreg Formula Year (n) Cash Flow (CF) Cumulative Cash Flow (CCF) Payback period | -775000| -775000 1 400000 - 375000 2 650000 275000 1.58 3 400000 675000 CCFn-1 + CFn 1 + (-CCF1/CF2)

b). NPV for Dry Prepreg = 499,447.66; for Solvent Prepreg = 385,030.98

Dry Prepreg Formula Year (n) Cash Flow (CF) Discount factor @ 12% PV of CF NPV IRR 0 -1750000 1.000 -1750000 499447.66 29.22% 1 1105000 0.893 986607 2 910000 0.797 725446 1/(1+12%)^n CF*Discount factor Sum of all PVs Using IRR function with CFS Solvent Prepreg Formula 3 755000 0.712 537394 Year (n) Cash Flow (CF) Discount factor @ 12% PV of CF NPV IRR 0 -775000 1.000 -775000 385030.98 38.82% 1 400000 0.893 0.893 357142.9 2 650000 0.797 518176 1/(1+12%)^n CF*Discount factor Sum of all PVS Using IRR function with CFS 3 400000 0.712 284712.1

c). IRR for Dry Prepreg = 29.22%; for Solvent Prepreg = 38.82% (Solved using IRR function, as shown in the table above.)

d). Incremental IRR = 19.88%

1 Formula Year (n) 2 3 Cash Flow (CF1) -1750000 1105000 910000 755000 Cash Flow (CF2) -775000 400000 650000 400000 CF1-CF2 Incremental Cash Flow (ICF) | -975000 705000 260000 355000| Using IRR function with ICFS Incremental IRR 19.88%