Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. Consider the following mutually exclusive pieces of equipment that perform the same task. The two alternatives available provide the following set of after-tax net

1. Consider the following mutually exclusive pieces of equipment that perform the same task.

The two alternatives available provide the following set of after-tax net cash flows:

Year

Cash Flow (A)

Cash Flow (B)

0

-20 000.00

-20 000

1

13 000.00

6 500

2

13 000.00

6 500

3

13 000.00

6 500

4

6 500

5

6 500

6

6 500

7

6 500

8

6 500

9

6 500

Equipment A has an expected life of three years, whereas equipment B has an expected life of nine years.

Assume a required rate of return of 14 percent. a. Calculate each equipments payback period.

b. Calculate each equipments discounted payback period.

c. Calculate each equipments Net Present Value (NPV).

d. Calculate each equipments internal rate of return.

e. How would you rank the investments based on the NPV criterion?

f. How would you rank the investments based on the IRR criterion?

g. The ________ assumes the reinvestment of funds at a rate equal to the equipments IRR.

h. The _______ assumes the reinvestment of funds at the firms cost of capital. (1 point)

Showing Workings

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance Lessons From The Past And Effects On The Future

Authors: Miguel-Angel Galindo Martin

1st Edition

1629481491, 978-1629481494

More Books

Students also viewed these Finance questions