Question

Consider the following two mutually exclusive projects:

  

Year	Cash Flow (A)				Cash Flow (B)
0	–$	354,000			–$	48,000
1		41,000				23,600
2		61,000				21,600
3		61,000				19,100
4		436,000				14,200

  

Whichever project you choose, if any, you require a return of 14 percent on your investment.

  

a-1	What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  

  

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 and round your answers to 2 decimal places, e.g., 32.16.)

  

  

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 and round your answers to 2 decimal places, e.g., 32.16.)

  

  

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? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

  

  

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 calculations and round your answers to 3 decimal places, e.g., 32.161.)

  

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?

Answer 1

a-1 Project A Project B 3.44 2.15 Project B 3.89 2.83 Project B a-2 b-1) Proiect A Project B b-2 c-1) Project A 28,222.69 Project B10,621.75 Project A 16.64% 25.38% Project B 1.080 1.221 Project B Project A d-1) Proiect A Project B d-2 e-1 Project A Project B e-2