Question

Question 7 5 pts Use the following after-tax cash flows for project A and B to answer the following question: (Numbers in parentheses are negative cash flows). These two projects are independent Year Cash Flow of A Cash Flow of B 0 ($2,400) ($4,500) 1 $999 $800 2 $950 $950 3 ($150) $950 $910 $800 5 $990 $900 6 ($500) $1980 What is the approximate payback of project B if the required rate of return is 10%? 4.56 years 6 years 5.05 years. The payback cannot be calculated. O O 4.96 years

Answer 1

B11 - fx =IRR(B4:B10) с D E F G Q7 Project B year A B 1 Q6 2 Project A 3 year Cash flows 4 0 $(2,400.00) 5 1 $ 999.00 6 2 $ 950.00 7 3 $ (150.00) 8 4 $ 910.00 9 5 $ 990.00 10 6 $ (500.00) 11 IRR 12.58% 12 13 Cash flows Cumulative CF 0 $(4,500.00) $ (4,500.00) 1 $ 800.00 $ (3,700.00) 2 $ 950.00 $ (2,750.00) 3 $ 950.00 $ (1,800.00) 4 $ 800.00 $ (1,000.00) 5 $ 900.00 $ (100.00) 6 $ 1,980.00 $ 1,880.00 Payback Period = 5+100/1980 14 = 5.05 years 15

B11 fx =IRR(B4:B10) A B С D E F G 1 Q6 2 Project A Q7 Project B year 0 3 year Cash flows -2400 4 0 Cash flows Cumulative CF -4500 =E4 800 =F4+E5 5 1 1 999 950 2 950 =F5+E6 6 2 7 3 8 4 - 150 3 950 4 800 910 990 =F6+E7 =F7+E8 =F8+E9 =F9+E10 95 5 900 10 6 -500 6 1980 11 IRR EIRR(B4:B10 12 13 Payback Period = 5+100/1980 =5+100/1980 14 II years 15