Question

Project A Project B -150000 85000 75000 22000 50000 54000 23000 32000 90000 12000

a) What is the payback period of project A
b) What is the payback period of project B
c) What is the NPV of project A (Required rate of return is 9%)
d)c) What is the NPV of project B (Required rate of return is 9%)

Answer 1

Question a: Calculation of Payback period of Project A Year Cash Flow - 150000 0 1 Cumulative Balance - 150000 -75000 -25000 -2000 88000 75000 50000 23000 90000 2 3 4 Payback Period Years before + Unrecovered Cost at start of the year Cashflow During the Year full recovery = 3 year+ (2000 / 90000) years = 3 +0.0222 years = 3.02 years Therefore, Payback period of the project A is 3.02 years Question b: Calculation of Payback Period of Project B Year Cash Flow Balance 0 -85000 -85000 1 22000 -63000 2 54000 -9000 3 32000 23000 4 12000 35000 Payback Period = Years before + full recovery Unrecovered Cost at start of the year Cashflow During the = 2 years + (9000/32000) years = 2.28125 years Therefore, Payback period of the project B is 2.28 years Question c: Calculation of NPV of the Project A Discount Discounted Period Cash Flows Factor@9% Cash Flows А B C = 1/(1+9%)^A D=B*C 0 - 150000 1 - 150000 1 75000 0.917431193 68807.3394 2. 50000 0.841679993 42083.9997 3 23000 0.77218348 17760.22 4 90000 0.708425211 63758.269 NPV of the Project 42409.8282 Therefore, NPV of the Project A is $42,209.83 Question d: Calculation of NPV of the Project B Discount Discounted Period Cash Flows Factor@9% Cash Flows А B C = 1/(1+9%)^A D=B*C 0 -85000 1 -85000 1 22000 0.917431193 20183.4862 2 54000 0.841679993 45450.7196 3 32000 0.77218348 24709.8714 4 12000 0.708425211 8501.10253 NPV of the Project 13845.1798 Therefore, NPV of the Project A is $13,845.18