Answer :
a(1)
Payback period for project A = $ 20000 / $ 23000 = 0.87 year (Approx)
Payback period for project B = $ 20000/$ 20000 = 1 year
b(1)
Computation of NPV of project A and Project B
Year |
cash flows Project A |
Cash flows Project B |
Present value @8 % Project A |
Present value @8 % Project B |
1 | $ 23000 | $ 20000 |
$ 21296.30 $ 23000/ (1+0 .08)1 |
$ 18518.52 $ 20000/(1 + 0.08 )1 |
2 | $ 10000 | $ 9000 |
$ 8573.39 $ 23000/ (1+0 .08)2 |
$ 7716.05 $ 9000/ (1 +0.08)2 |
3 | $ 10000 | $ 15000 |
$ 7938.32 $ 23000/ (1+0 .08)3 |
$ 11907.48 $ 15000/ (1+0.08)3 |
Total present value of inflow | $ 37808.01 | $ 38142.05 | ||
Less - Intial outflow | $ 20000 | $ 20000 | ||
Net present value | $ 17808.01 | $ 18142.05 |
Formula for present value = Future value / (1+ i)n
1 Appendix B Present value of $1. PVF PV=FV Percent Period 1% 5% 8% 9% 12%...
1 Appendix B Present value of $1. PVF PV=FV Percent Period 1% 5% 8% 9% 12% 1 2. 3 0.893 0.797 012 4 6 7 8 9 10 .............. 11 12 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.828 0.820 0.780 0.742 0.672 0.608 2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673 0.610 0.552 0.453 0.372...
1 Appendix B Present value of $1. PVF PV=FV Percent Period 1% 5% 8% 9% 12% 1 2. 3 0.893 0.797 012 4 6 7 8 9 10 .............. 11 12 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.828 0.820 0.780 0.742 0.672 0.608 2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673 0.610 0.552 0.453 0.372...
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