Question

Consider the following two mutually exclusive projects: Year 0 Cash Flow (A) -$249,900 30,000 52,000 55,000 418,000 Cash Flow (B) -$15,690 5,235 8,612 13,436 9,198 لا ليا م Whichever project you choose, if any, you require a 6 percent return on your investment

a. What is the payback period for Project A?

b.What is the payback period for Project B?

c. What is the discounted payback period for Project A?

d. What is the discounted payback period for Project B?

e. What is the NPV for Project A?

f. What is the NPV for Project B?

g. What is the IRR for Project A?

h. What is the IRR for Project B?

i. What is the profitability index for Project A?

j. What is the profitability index for Project B?

Answer 1

B8 - Fax =IRR(B3:37) c 1 Project A 2 year Cash flows pv@6% Present value Cumulative Cash flows Discounted Cumulative Cash Flows 0 $ (2,49,900.00) 1.0000 $ (2,49,900.00) $ (2,49,900.00) $ (2,49,900.00 1 $ 30,000.00 0.9434 $ 28,301.89 $ (2,19,900.00) $ (2,21,598.11 2 $ 52,000.00 0.8900 $ 46,279.81 $ (1,67,900.00 $ (1,75,318.30 3 $ 55,000.00 0.8396 $ 46,179.06 $ (1,12,900.00) $ (1,29,139.24 4 $ 4,18,000.00 0.7921 $ 3,31,095.15 $ 3,05,100.00 $ 2,01,955.91 IRR 26.00%||NPV $ 2,01,955.91 Payback Period 3+112900/418000 3.27 Years Discounted Payback 3+129139.24/331095.15 3.39 Years 1+NPV/Initial Investment 1+201955.91/249900 1.81

Fax =IRR(B3:37) A 1 Project A 2 year pv@6% Cash flows -249900 30000 52000 55000 418000 =IRR(B3:37) =C3/1.06 =C4/1.06 C5/1.06 1=C6/1.06 NPV Present value =B3*C3 =B4*C4 =B5*C5 =B6 C6 =B7*C7 =SUM(D3:07) Cumulative Cash flows =B3 =E3+B4 =E4+B5 =E5+B6 =E6+B7 Discounted Cumulative Cash Flows =D3 =F3+D4 =F4+D5 =F5+D6 =F6+D7 Payback Period 3+112900/418000 =3+112900/418000 Years Discounted Payback 3+129139.24/331095.15 =3+129139.24/331095.15 Years 1+NPV/Initial Investment 1+201955.91/249900 =1+201955.91/249900

for EIRR(13:17) 1 Project B 2 year Cash flows pv@6% $ (15,690.00) $ 5,235.00 $ 8,612.00 $ 13,436.00 $ 9,198.00 39.00%||NPV Present value 1.0000 $ 0.9434 $ 0.8900 $ 0.8396 $ 0.7921 $ Cumulative cash flows Discounted Cumulative Cash Flows (15,690.00) $ (15,690.00) $ (15,690.00) 4,938.68 $ (10,455.00 $ (10,751.32) 7,664.65 $ (1,843.00) $ (3,086.67) 11,281.12 $ 11,593.00 $ 8,194.45 7,285.68 $ 20,791.00 $ 15,480.13 15,480.13 4 IRR Payback Period 2+1843/13436 2.14 Years Discounted Payback 2+3086.67/11281.12 2.27 Years 1+NPV/Initial Investment 1+15480.13/15690 1.99

18 fo =IRR(13:17) 1 Project B 2 year 30 pv@6% Cumulative Cash flows =13 Cash flows - 15690 5235 8612 13436 9198 =IRR(13:17) 5 2 Present value =13*J3 =14*14 =15*J5 =16*16 =17*J7 =SUM(K3:67) =J3/1.06 =34/1.06 =J5/1.06 =J6/1.06 NPV Discounted Cumulative Cash Flows =K3 =M3+K4 =M4+K5 =M5+K6 =M6+K7 mt =L3+14 L4+15 =L5+16 =L6+17 Payback Period 2+1843/13436 =2+0.137168800238166 Years Discounted Payback 2+3086.67/11281.12 =2+3086.67/11281.12 Years 1+NPV/Initial Investment 1+15480.13/15690 =1+15480.13/15690