Question

Consider the following two mutually exclusive projects:

Year	Cash Flow (A)				Cash Flow (B)
0	–$	350,000			–$	50,000
1		45,000				24,000
2		65,000				22,000
3		65,000				19,500
4		440,000				14,600

Whichever project you choose, if any, you require a 15% return on your investment.

a-1. What is the payback period for each project? (Round the final answers to 2 decimal places.)

	Payback Period
Project A	years
Project B	years

a-2. If you apply the payback criterion, which investment will you choose?

• Project A

• Project B

b-1. What is the discounted payback period for each project? (Do not round intermediate calculations. Round the final answers to 2 decimal places.)

	Discounted Payback Period
Project A	years
Project B	years

b-2. If you apply the discounted payback criterion, which investment will you choose?

• Project A

• Project B

c-1. What is the NPV for each project? (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.)

	NPV
Project A	$
Project B	$

c-2. If you apply the NPV criterion, which investment will you choose?

• Project A

• Project B

d-1. What is the IRR for each project? (Round the final answers to 2 decimal places.)

	IRR
Project A	%
Project B	%

d-2. If you apply the IRR criterion, which investment will you choose?

• Project A

• Project B

e-1. What is the profitability index for each project? (Do not round intermediate calculation. Round the final answers to 3 decimal places.)

	Profitability Index
Project A
Project B

e-2. If you apply the profitability index criterion, which investment will you choose?

• Project A

• Project B

f. Based on your answers in (a) through (e), which project will you finally choose?

• Project A

• Project B

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

Ovo a 1x 2 ENG 19:56 W = 11-03-2020 E24 ... o X DB752 - V for CV X CW CX CY CZ DA / DB D CL Formula Bar DU D E [A ALL METHODS YEAR CFATA CFAT B CUMULATIVE CFAT 730 731 732 733 734 735 736 737 738 739 740 741 742 743 744 -50000 -26000 -350000 45000 65000 65000 440000 -50000 24000 22000 19500 14600 -350000 -305000 -240000 -175000 265000 -4000 15500 30100 a-1 PAYBACK PERIOD (A) 3+ CCFAT 3/CFAT4 3+ (175000/440000) 745 3.40 YEARS PAYBACK PERIOD (B) 2 + CCFAT 2/CFAT3 2 + (4000/19500) 2.21 YEARS 746 747 748 749 750 751 752 753 ze NOTE : IGNORE NEGATIVE SIGN IN CALCULATION OF CCFAT a-2 SELECT PROJECT B FAATAN DDCCCNLTULAUULE AF AFAT IN ALLUATILIE RATIO PI PBP ARR invest, EAA MI-np-ir REPLACEMENTS IRRnpvbeta HPR GMAM EAC MACRS RELEVANT NPV BETA LEVERED REPLACEMENT BOND ... +

19:57 W Ovo a 1x 2 ENG 11-03-2020 E ... X CX772 fix - . x W cv cx cr CZ DA DB DC DD DE A 753 754 755 YEAR CFATA CFAT B PRESENT VALUE OF CFAT PV FACTOR AT 15% CUMULATIVE DISCOUNTED CFAT B 756 p*R Q*R 757 758 759 -350000 45000 65000 65000 440000 -50000 24000 22000 19500 14600 -350000 39130.43 49149.34 42738.56 251571.43 0.8696 0.7561 0.6575 0.5718 -50000 20869.57 16635.16 12821.57 8347.60 -350000 -310869.57 -261720.23 -218981.67 32589.76 -50000 -29130.43 -12495.27 326.29 8673.89 760 b-1 DISCOUNTED PAYBACK PERIOD (A) 3+ CCFAT 3/CFAT4 3+ (218981.67/251571.43) 3.87 YEARS DISCOUNTED PAYBACK PERIOD (B) 2 + CCFAT 2/CFAT3 2 + (12495.27/12821.57) 2.97 YEARS 761 762 763 764 765 766 767 768 769 770 771 772 773 774 775 776 777 b-2 SELECT PROJECT B deede RATIO PI PBP ARR invest, EAA MI-np-ir REPLACEMENTS IRRnpvbeta HPR GMAM EAC MACRS RELEVANT NPV BETA LEVERED REPLACEMENT BONC ... +

W Ovo a 1x 2 ENG 19:57 11-03-2020 ... X CZ794 X cv . W cx cr CZ DA DB DC DD DE I CA 771 772 YEAR CFATA CFAT B PRESENT VALUE OF CFAT 773 PV FACTOR AT 15% B p*R Q*R 774 775 776 777 778 779 -350000 45000 65000 65000 440000 -50000 24000 22000 19500 14600 NPV = 0.8696 0.7561 0.6575 0.5718 -350000 39130.43 49149.34 42738.56 251571.43 32589.76 -50000 20869.57 16635.16 12821.57 8347.60 8673.89 780 c-1 NPV FOR A 32589.76 NPV FOR B 8673.89 C-2 SELECT PROJECT A 781 782 783 784 785 786 787 788 d-1 IRR FOR A FOR B 18.14% (=IRR(CY775:CY779)] 24.08% (=IRR(CZ775:CZ779)] 789 d-2 SELECT PROJECT B 790 e-1 PI= FOR A FOR B 1.093 (1 + NPV/INVESTMENT) 1.173 791 792 793 794 e-2 SELECT PROJECT B rܩܒ RATIO PI PBP ARR invest, EAA MI-np-ir REPLACEMENTS IRRnpvbeta HPR GMAM EAC MACRS RELEVANT NPV BETA LEVERED REPLACEMENT BOND ... Đ

19:58 E W @ivo a 1x 3 ENG 11-03-2020 24 X CV801 - CV X fx CWL CX CY CZ DA DB D C D D DE A 788 d-2 SELECT PROJECT B 789 790 e-1 PI= FOR A FOR B 1.093 (1 + NPV/INVESTMENT) 1.173 791 792 793 794 795 e-2 SELECT PROJECT B 796 NPV IS THE BEST METHOD AS IT MEASURES HOW MUCH WEALTH IS CREATED BY SHAREHOLDERS WE WILL SELECT PROJECT A 797 798 799 800 801 802 803 804 805 806 807 808 809 810 811 RATIO PI PBP ARR invest, EAA MI-np-ir REPLACEMENTS IRRnpvbeta HPR GMAM EAC MACRS RELEVANT NPV BETA LEVERED REPLACEMENT BOND ... Đ