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Net present value

Britney Javelin Company is considering two investments, both of which cost $46,000. The cash flows are as follows: Use Appendix B and Appendix D.

 

YearProject MProject N
1
$24,000

$19,000
2
19,000

23,000
3
16,000

20,000

 

a. Calculate the payback period for project M and project N. (Round the final answers to 2 decimal places.) 

  


     Payback period

  Project M years  

  Project N years  

 

b-1. Calculate the NPV for project M and project N. Assume a cost of capital of 8 percent. (Round "PV Factor" to 3 decimal places. Round the intermediate and final answers to the nearest whole dollar.) 

 


Net present value
  Project M$       
  Project N$       

 

b-2. Which of the two projects should be chosen based on the NPV method?

 

  • Project M

  • Project N

  • Both


 

c.  Should a firm normally have more confidence in answer derived based on NPV method or Payback method?

 

  • NPV method

  • Pay back method



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