Question
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 $433,000 $44,000 1 40,000 21,200 2 66,000 12,500 3 83,000
| Consider the following two mutually exclusive projects: |
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | $433,000 | $44,000 |
| 1 | 40,000 | 21,200 |
| 2 | 66,000 | 12,500 |
| 3 | 83,000 | 22,600 |
| 4 | 548,000 | 19,400 |
| The required return on these investments is 14 percent. |
| Required: | |
| (a) | What is the payback period for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) |
| Payback period | |
| Project A | years |
| Project B | years |
| (b) | What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) |
| Net present value | |
| Project A | $ |
| Project B | $ |
| (c) | What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Internal rate of return | |
| Project A | % |
| Project B | % |
| (d) | What is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 3 decimal places (e.g., 32.161).) |
| Profitability index | |
| Project A | |
| Project B | |
| (e) | Based on your answers in (a) through (d), which project will you finally choose? |
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