Question
Problem 8-15 Comparing Investment Criteria [LO 1, 3, 4, 6] Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0
Problem 8-15 Comparing Investment Criteria [LO 1, 3, 4, 6]
| Consider the following two mutually exclusive projects: |
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | $419,000 | $37,000 |
| 1 | 47,000 | 19,800 |
| 2 | 59,000 | 13,900 |
| 3 | 76,000 | 15,600 |
| 4 | 534,000 | 12,400 |
| The required return on these investments is 11 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? |
| (Click to select)Project BProject A |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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