Question

Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) $195,640 26,500 52,000 51,000 390,000 -$16,290 5,293 8,843 13,587 9,577 0 2 3 4 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A?

b. What is the payback period for Project B? c. What is the discounted payback period for Project A?

d. What is the discounted payback period for Project B? e. What is the NPV for Project A?

f. What is the NPV for Project B? g. What is the IRR for Project A?

h. What is the IRR for Project B? i. What is the profitability index for Project A?

j. What is the profitability index for Project B?

Answer 1

	Year	Project Cash Flows A (i)	CUMULATIVE CASH FLOW A	Project Cash Flows B (ii)	CUMULATIVE CASH FLOW B	DF@ 6% (ii)	PV of Project A ( (i) * (ii) )	Cumulative Cash Flow	PV of Project B ( (i) * (ii) )	Cumulative Cash Flow
	0	-195640	-195640	-16290	-16290	1	(1,95,640.00)	(1,95,640.00)	(16,290.00)	(16,290.00)
	1	26500	-169140	5293	-10997	0.943	25,000.00	(1,70,640.00)	4,993.40	(11,296.60)
	2	52000	-117140	8843	-2154	0.890	46,279.81	(1,24,360.19)	7,870.24	(3,426.37)
	3	51000	-66140	13587	11433	0.840	42,820.58	(81,539.60)	11,407.91	7,981.54
	4	390000	323860	9577	21010	0.792	3,08,916.53	2,27,376.93	7,585.88	15,567.42
	TOTAL	323860		21010			227376.927		15,567.42
a)	PAYBACK PROJECT A =		3 years + 66140/ 390000
			3.17 years
b)	PAYBACK PROJECT B =		2 years + 2154/13587
			2.16 years
c)	Discounted Payback Period Project A=		3 years + 81539.6/308916.53
			3.26 years
d)	Discounted Payback Period Project B=		2 years + 3426.37/11407.91
			2.30 years