Question

Year Kaleb Konstruction, Inc., has the following mutually exclusive projects available. The company has historically used a three-year cutoff for projects. The required return is 14 percent. Project F Project G -$ 138,000 -$ 208,000 58,500 38,500 51,500 53,500 61,500 91,500 56,500 121,500 51,500 136,500 1 2 3 4 5 a. Calculate the payback period for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Project F Project G Payback period years years b. Calculate the NPV for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Project F Project G Net present value $ $ Abiehraiart if an houdhamanan?

Answer 1

Answers:

a.

	Payback Period
Project F	2.46	years
Project G	3.20	years

b.

	Net Present Value
Project F	$ 54,654.14
Project G	$ 71,529.91

Notes:

a. Payback Period = ( Last Year with a Negative Cash Flow ) + [( Absolute Value of negative Cash Flow in that year)/ Total Cash Flow in the following year)]

Project F , Payback Period = 2+ (28000/61500)

= 2.46 Years

Note:

Year	Investment	Cash Inflow	Net Cash Flow
0	-1,38,000.00	-	-1,38,000	(Investment + Cash Inflow)
1	-	58,500.00	-79,500	(Net Cash Flow + Cash Inflow)
2	-	51,500.00	-28,000	(Net Cash Flow + Cash Inflow)
3	-	61,500.00	33,500	(Net Cash Flow + Cash Inflow)
4	-	56,500.00	90,000	(Net Cash Flow + Cash Inflow)
5	-	51,500.00	1,41,500	(Net Cash Flow + Cash Inflow)

Project G, Payback Period = 3+24,500/121,500

= 3.20 years

Note:

Year	Investment	Cash Inflow	Net Cash Flow
0	-2,08,000.00	-	-2,08,000	(Investment + Cash Inflow)
1	-	38,500.00	-1,69,500	(Net Cash Flow + Cash Inflow)
2	-	53,500.00	-1,16,000	(Net Cash Flow + Cash Inflow)
3	-	91,500.00	-24,500	(Net Cash Flow + Cash Inflow)
4	-	1,21,500.00	97,000	(Net Cash Flow + Cash Inflow)
5	-	1,36,500.00	2,33,500	(Net Cash Flow + Cash Inflow)

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b. Net Present Value = Present Value of Cash Inflows -  Present Value of Cash Outflows

Project F:

Net Present Value = [58500*1/(1.14)^1+51500*1/(1.14)^2+61500*1/(1.14)^3+56500*1/(1.14)^4+51500*1/(1.14)^5]-138000

= $ 54,654.14

Project G:

Net Present Value = [38500*1/(1.14)^1+53500*1/(1.14)^2+91500*1/(1.14)^3+121500*1/(1.14)^4+136500*1/(1.14)^5 ]-208000

= $ 71,529.91