Question

Consider the following two mutually exclusive projects:

 

Year	Cash Flow (A)				Cash Flow (B)
0	–$	420,000			–$	71,000
1		72,000				31,000
2		92,000				29,000
3		72,000				26,500
4		447,000				21,600

 

Whichever project you choose, if any, you require a 15% return on your investment.

 

a-1. What is the payback period for each project? (Round the final answers to 2 decimal places.)

 

	Payback Period
Project A	3.41  Numeric Response 1.Edit Unavailable. 3.41 correct.years
Project B	2.42  Numeric Response 2.Edit Unavailable. 2.42 correct.years

 

a-2. If you apply the payback criterion, which investment will you choose?

 

multiple choice 1

• Project A

• Project B Correct

 

b-1. What is the discounted payback period for each project? (Do not round intermediate calculations. Round the final answers to 2 decimal places.)

 

	Discounted Payback Period
Project A	3.94  Numeric Response 3.Edit Unavailable. 3.94 correct.years
Project B	3.38  Numeric Response 4.Edit Unavailable. 3.38 incorrect.years

 

b-2. If you apply the discounted payback criterion, which investment will you choose?

 

multiple choice 2

• Project A

• Project B Correct

 

c-1. What is the NPV for each project? (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.)

 

	NPV
Project A	$ 15088.78 Numeric Response 5.Edit Unavailable. 15088.78 correct.
Project B	$ 7658.74 Numeric Response 6.Edit Unavailable. 7658.74 correct.

 

c-2. If you apply the NPV criterion, which investment will you choose?

 

multiple choice 3

• Project A Correct

• Project B

 

d-1. What is the IRR for each project? (Round the final answers to 2 decimal places.)

 

	IRR
Project A	16.30  Numeric Response 7.Edit Unavailable. 16.30 correct.%
Project B	20.57  Numeric Response 8.Edit Unavailable. 20.57 correct.%

 

d-2. If you apply the IRR criterion, which investment will you choose?

 

multiple choice 4

• Project A

• Project B Correct

 

e-1. What is the profitability index for each project? (Do not round intermediate calculation. Round the final answers to 3 decimal places.)

 

	Profitability Index
Project A	1.04 Numeric Response 9.Edit Unavailable. 1.04 incorrect.
Project B	1.11 Numeric Response 10.Edit Unavailable. 1.11 incorrect.

 

e-2. If you apply the profitability index criterion, which investment will you choose?

 

multiple choice 5

• Project A

• Project B Correct

 

f. Based on your answers in (a) through (e), which project will you finally choose?

 

multiple choice 6

• Project A

• Project B Incorrect

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