Question
An Investor has a choice of two Investment Projects. The estimated costs and returns are as follows Project A Project B Cost 400,000 320,000 Yr.
An Investor has a choice of two Investment Projects. The estimated costs and returns are as follows
|
| Project A | Project B |
|
| ||
| Cost | 400,000 | 320,000 |
| Yr. 1 Cash Inflow (Net) | -20,000 (loss) | 25,000 |
| Yr. 2 Cash Inflow (Net) | 270,000 | 190,000 |
| Yr. 3 Cash Inflow (Net) | 360,000 | 315,000 |
Required:
- For each project, calculate the Payback period. Give you answer in years and months (15 marks)
- Using a discount factor of 16% and the table (below) calculate the Net Present Value (NPV) for both projects (15 marks)
- Looking at Project A only when you use a discount factor of 18% the NPV is negative -3,840. Use this information to calculate the internal rate of return (IRR) for Project A. ( 20 marks)
| Discount Factor | 16% |
| Year 1 | 0.862 |
| Year 2 | 0.743 |
| Year 3 | 0.641 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Investments An Introduction
Authors: Herbert B Mayo
9th Edition
324561385, 978-0324561388
