Question
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
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.
c. Calculate the IRR of each project. Rank the project by IRR.
d. Make a recommendation.
Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, each with an initial investment of $110 comma 000. The company's board of directors has set a 4-year payback requirement and has set its cost of capital at 8%.
| Cash inflows (CFt) | |||
Year | Project A | Project B | |
1 | $35 comma 000 | $75 comma 000 | |
2 | $35 comma 000 | $50 comma 000 | |
3 | $35 comma 000 | $20 comma 000 | |
4 | $35 comma 000 | $20 comma 000 | |
5 | $35 comma 000 | $20 comma 000 | |
6 | $35 comma 000 | $20 comma 000 | |
Step by Step Solution
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Payback period limit is 4 years Project A payback period 11035 314 4 years Project B payback period 1 ...
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Financial Management Core Concepts
Authors: Raymond M Brooks
2nd edition
132671034, 978-0132671033
