Question

Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$194,527 –$15,905 1 27,700 5,627 2 52,000 8,470 3 52,000 13,908 4 413,000 8,564 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

	Cash Flow (A)	Discounting Factor	Discounted value	Value
0	1,94,527			-1,94,527
1	27,700	0.94	26,132.08	26,132.08
2	52,000	0.89	46,279.81	46,279.81
3	52,000	0.84	43,660.20	43,660.20
4	4,13,000	0.79	3,27,134.68	3,27,134.68
	NPV			2,48,679.78
	Profitability Index			2.28
	IRR			27%
	Payback period		yrs	3.15212349
	Disconted payback period		yrs	3.24
	Cash Flow (B)	Discounting Factor	Discounted value	Value
0	15905			-15,905.00
1	5,627	0.94	5,308.49	5,308.49
2	8,470	0.89	7,538.27	7,538.27
3	13,908	0.84	11,677.42	11,677.42
4	8,564	0.79	6,783.49	6,783.49
	NPV			15,402.68
	Profitability Index			1.97
	IRR			31%
	Payback period		yrs	2.12999712
	Disconted payback period		yrs	2.26