Question

(18 points) Neil Corporation has two projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% discount rate. Year Initial Investment (CF) Project A $40,000 $13,000 13,000 13,000 Project B $30,000 $19,000 16,000 13,000 a. Determine the payback period for project A. b. Determine the payback period for project B. c. Calculate the NPV for project A. d. Calculate the NPV for project B. e. Determine the discounted payback period for project A. f. Determine the discounted payback period for project B.

Answer 1

PVIF@16% Cash flows Present value Simple cumulative cash flows Cumulative present value cash flows Year Project A Project B Project A Project A Project B Project A Project B Project B АxC A В C Вxс (40,000)$ (28,793) $ (19,132)$ (10,803) $ O$ (40,000)(30,000) -$30,000 $ $16,379 $ $11,891 $ $8,329 $ (30,000) $ (11,000) $ 5,000 $ (40,000) $ (27,000) $ (14,000) $ (1,000) $ -$40,000 (30,000) (13,621) (1,730) 1.000 1$ 13,000 19,000 13,000 16,000 13,000 13,000 $11,207 0.862 2 S $9,661 $8,329 0.743 3S 0.641 18,000 6,598 -$10,803 $6,598| NPV Payback period 0.00 1.69 Years Years -1+ 11000/16000 Discounted payback period 0.00 2.21 Years Years 2+1730/8329

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