Question

Swifty Inc. has two projects as follows: Project A Initial CF CF -2,520 920 -3,070 820 CF2 1,270 1,570 CF3CF4 1,020 1,970 1,120 3,970 B Swifty set 2.6 years as a cut-off period for screening projects and the discount rate is 15 percent. Which project(s) will be selected if the company uses the discounted payback period method? (Round intermediate calculations to 5 decimal places, e.g. 1.25125 and the final answers to 2 decimal places e.g. 1.25.) Project A payback period years Project B payback period years will be selected.

Answer 1

Discounted cash flows Cumulative discounted cash flows Year Project A Project B (2,520) S (3,070) Project B (3,070.00) $ Project B (3,070.00) PVIF@ 15% Project A S (2,520.00) S Project A (2,520.00) $ (1,720.00) $ (759.70) $ 0S 1.000 1S $ $ (2,356.96) 920 S 820 0.870 800.00 713.04 2 S 1,270 1,570 0.756 960.30 S (1,169.81) 1,187.15 3 S 670.67 S (89.03 (433.39) 1,020 1,120 0.658 736.42 4 S $ 0.572 1,126.35 2,269.86 S 1,970 3,970 1,037.32 1,836.47 Discounted payback period 3.08 3.19 Years Years -3+89.03/1126.35 =3+433.39/2269.86 Select project A

*Please rate thumbs up