Question

FIN 203-2199-86083 Rigene Lumaj 11/7/1993 Homework: FL 7 Score: 1.8 of 2 pts 3 of 5 (5 complete) HW Score: 98%, 9.8 a P10-21 (similar to) Question Hels All techniques, conflicting rankinge Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, each with an initial investment of $110,000. The company's board of directors has set a payback requirement and has set its cost of capital at 9%. The cash inflows associated with the two projects are shown in the following table: a. Calculate the payback period for each project. Rank the projects by payback period. b. Calculate the NPV of each project Rank the project by NPV. e. Calculate the IRR of each project. Rark the project by IRR d. Make a recommendation a. The payback period of project Ais 3.14 years. (Round to two decimal places) Data Table (Click on the con located on the top right comer of the datatable below in order to copy contents into a spreadsheet) The payback period of project Dis 18 years. (Round to two decimal places) According to the payback method, which project should the firm choose? (Select the best answer below) Year DA Project A Project B Cash inflows (CF) Project A Project B $35,000 $75,000 $35,000 $80,000 $35.000 $10.000 $35.000 $10,000 $35,000 $10.000 $35.000 $10.000 b. The NPV of project Ass (Round to the nearest cent) Enter your answer in the answer box and then click Check Answer 6 Marts O remaining Print Done . NO
Please answer b,c and d

I already solve a

please answer fast.

Answer 1

Payback Method:

Project A

Payback period=full years until recovery + unrecovered cost at the start of the year/cash flow during the year

                           = 3 years + ($110,000 - $105,000)/$35,000

                           = 3 years + $5,000/ $35,000

                           = 3 years + 0.1429

                           = 3.14 years.

Project B

Payback period=full years until recovery + unrecovered cost at the start of the year/cash flow during the year

                          

                             = 1 year + ($110,000 - $75,000)/$60,000

                             = 1 year + $35,000/ $60,000)

                             = 1 year + 0.5833

                             = 1.58 years.   

Ranking of projects by payback method:

1. Project B
2. Project A

b.Project A

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$110,000. It is entered has a negative value since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the cost of capital of 9%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 9% cost of capital is $47,007.15.

Project B

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$110,000. It is entered has a negative value since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the cost of capital of 9%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 9% cost of capital is $36,576.21.

Ranking of projects by the net present value method:

1. Project A
2. Project B

c. Project A

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$130,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of project is 22.32%.

Project B

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$130,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of project is 27.26%.

Ranking of projects by the internal rate of return method:

1.Project B

2. Project A

I would recommend to accept project A since it has the highest net present value.

In case of any query, kindly comment on the solution.