Question
For the following two projects, determine the Payback Period Discounted Payback Net Present Value Profitability Index (Benefit-Cost Ratio) Internal Rate of Return Modified Internal Rate
For the following two projects, determine the
- Payback Period
- Discounted Payback
- Net Present Value
- Profitability Index (Benefit-Cost Ratio)
- Internal Rate of Return
- Modified Internal Rate of Return
|
| Project A |
|
| Project B |
|
|
| Year |
| Net Income | Cash Flow |
| Net Income | Cash Flow |
| 0 |
|
| (15,000) |
|
| (19,000) |
| 1 |
| 5,000 | 6,000 |
| 3,000 | 4,000 |
| 2 |
| 5,000 | 6,000 |
| 5,000 | 6,000 |
| 3 |
| 5000 | 6,000 |
| 7,000 | 8,000 |
| 4 |
| 5,000 | 6,000 |
| 11,000 | 12,000 |
| Risk Index | 1.80 |
|
| .60 |
|
|
The firms cost of capital ko is 15% and the risk free rate Rf is 10%. The firm assesses risk and assigns a risk index to determine a risk adjusted discount rate. An index of 1.0 would be assigned to an average risk project.
To determine risk adjusted rates the firm uses the following equation:
Risk Adjusted Rate (RADR) = Rf + [Risk Index (ko Rf)
Task: Rank the projects in accordance with each method of analysis.
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Production And Operations Analysis
Authors: Steven Nahmias
6th Edition
0073377856, 9780073377858
