Question

Maxwell Software, Inc., has the following mutually exclusive projects. Year Project A -$22,000 13,000 9,500 3,100 Project B -$25,000 14,000 10,500 9,500 نادية 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 years Project A Project B years a-2. Which, if either, of these projects should be chosen? O Project A O Project B Both projects Neither project b-1. What is the NPV for each project if the appropriate discount rate is 16 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 16 percent? O Project A O Project B Both projects Neither project

Answer 1

fc =SUM(E3:56) B Project A year Cash flows pv@16% 0 $ (22,000.00) 1 $ 13,000.00 2 $ 9,500.00 3 $ 3,100.00 NPV Present value Cumulative Cash flows 1.0000 $ (22,000.00) $ (22,000.00) 0.8621 $ 11,206.90 $ (9,000.00) 0.7432 $ 7,060.05 $ 500.00 0.6407 $ 1,986.04 $ 3,600.00 $ (1,747.02) Project B year Cash flows pv@16% 0 $ (25,000.00) 1 $ 14,000.00 2 $ 10,500.00 3 $ 9,500.00 NPV Present value Cumulative Cash flows 1.0000 $ (25,000.00) $ (25,000.00) 0.8621 $ 12,068.97 $ (11,000.00) 0.7432 $ 7,803.21 $ (500.00) 0.6407 $ 6,086.25 $ 9,000.00 $ 958.42 Payback Period A Payback Period B 1+9000/9500 2+500/9500 1.947 Years 2.053 years 19 20 a2 Accept Project A using Payback 22 bi Project A Project B $ $ (1,747.02) 958.42 23 24 25 b2 Accept Project B using Payback

E7 fo =SUM(E3:56) pv@16% 1 Project A 2 year 30 4 1 Cash flows -22000 13000 9500 3100 =D3/1.16 =D4/1.16 =D5/1.16 NPV Present value =C3*D3 =C4*D4 =C5*D5 =C6*D6 SUM(E3:56) Cumulative Cash flows =C3 =F3+C4 =F4+C5 =F5+C6 9 Project B 10 year pv@16% BEBEEEEEEEEEE Co vano Cash flows -25000 14000 10500 9500 =D11/1.16 =D12/1.16 =D13/1.16 NPV Present value =C11*D11 =C12*012 =C13*D13 =C14*D14 =SUM(E11:E14) Cumulative Cash flows =C11 =F11+C12 =F12+C13 =F13+C14 1+9000/9500 2+500/9500 =1+9000/9500 =2+500/9500 17 Payback Period A 18 Payback Period B 19 20 Accept Project A using Payback 21 22 Project A 23 Project B 24 25 Accept Project B using Payback -E7 =E15