Question

Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,500 per year for 5 years. Project L co

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> This answer provided is only partially correct. The PI calculation is incorrect. It should be: 1 + (NPV/Initial cost) for both Project S and Project L. The answer is 1.20 for Project S and 1.10 for Project L

Frank Abagnale Sun, Dec 5, 2021 5:30 PM

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Answer #1

rate positively ..

i ii iii iv=i*iii v=ii*iii vi vii
Year Cash flow S Cash flow L PVIF @ 14% Present value S Present value L Cumulative PV S Cumulative PV L
0 -10000 -25000             1.0000                             (10,000.00)                            (25,000.00)          (10,000.00)           (25,000.00)
1 3500 8000             0.8772                                 3,070.18                                7,017.54            (6,929.82)           (17,982.46)
2 3500 8000             0.7695                                 2,693.14                                6,155.74            (4,236.69)           (11,826.72)
3 3500 8000             0.6750                                 2,362.40                                5,399.77            (1,874.29)              (6,426.94)
4 3500 8000             0.5921                                 2,072.28                                4,736.64                 197.99              (1,690.30)
5 3500 8000             0.5194                                 1,817.79                                4,154.95              2,015.78               2,464.65
                                2,015.78                                2,464.65              4,031.57               4,929.30
ans a) NPV S      2,015.78 Based on NPV project L should be selected
NPV L      2,464.65
Formula
ans b) IRR S 22.11% Based on IRR project S should be selected =IRR(D5:D10)
IRR L 18.03% =IRR(E5:E10)
Ans c) MIRR S 18.26% Based on MIRR project S should be selected
MIRR L 16.16%
Ans d) PI S             3.90 year
PI L             4.41 year
Project L should be selected.

> > This answer provided is only partially correct. The PI calculation is incorrect. It should be: 1 + (NPV/Initial cost) for both Project S and Project L. The answer is 1.20 for Project S and 1.10 for Project L

Frank Abagnale Sun, Dec 5, 2021 5:30 PM

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