| X-treme Vitamin Company is considering two investments, both of which cost $28,000. The cash flows are as follows: |
| Year | Project A | Project B |
| 1 | $ | 30,000 | | $ | 25,000 | |
| 2 | | 15,000 | | | 16,000 | |
| 3 | | 10,000 | | | 6,000 | |
| |
| Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. 
|
| a-1. | Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.) |
| | Payback Period |
| Project A | year(s) |
| Project B | year(s) |
| |
| a-2. | Which of the two projects should be chosen based on the payback method? |
| | |
| | |
| b-1. | Calculate the net present value for Project A and Project B. Assume a cost of capital of 9 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places.) |
| | Net Present Value |
| Project A | $ |
| Project B | $ |
| |
| b-2. | Which of the two projects should be chosen based on the net present value method? |
| | |
| | |
| c. | Should a firm normally have more confidence in the payback method or the net present value method? |
| | |
| | | | Payback method | | | Net present value method | |
Appendix B Present value of $1, PW Period 1% 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923. 0.914. 0.905 0,896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 19 0,828 0.820 25 0,780 30 0.742 40 0.672 0.608 Appendix B (concluded) Present value of $1 Period 13% 0,885 0.783 0,693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.26 12 0.23 13 0.204. 14 0.18 15 0.160 16 0.141 17 0.125 0.11 0.098 0.087 0.047 0.026 0.008 0.002 2% 0.980 0.961 0.942 0.924. 0.906 0.888 0.871 0.853 0.837 0.820 0,804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0,686 0.673 0.610 0.552 0.453 0.372 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.35 0.300 0.270 0.237 0.208 0.182 0.160 0.140 0.123 0.108 0.095 0.083 0,073 0.038 0.020 0.005 0.00 3% 0.97 0,943 0.915 0,888 0.863 0.837 0.813 0.789 0.766 0.744. 0,722 0.701 0.68 0.66 0.642 0.623 0,605 0.587 0.570 0.554 0.478 0.412 0,307 0.228 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0,247 0.215 0.187 0,163 0.141 0.123 0.107 0.093 0,08 0.070 0,061 0.030 0,015 0.004 0.001 Percent 4% 5% 6% 7% 8%. 10% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0,925 0,907 0.890 0.873 0.857 0.842 0.826 0.889 0.864. 0.840 0.816 0.794 0.772 0.751 0,855 0,823 0.792 0.763 0.735 0.708 0.683 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.760 0.71 0.665 0.623 0.583 0.547 0.513 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.422 0.676 0.614 0.558 0.508 0.463 0.386 0.650 0.585 0,527 0,475 0,429 0,388 0,350 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.290 0.60 0.530 0.469 0.415 0.368 0.326 0.340 0.577 0,505 0.442 0.388 0.299 0.263 0.555 0.48 0.417 0.362 0.315 0.239 0.275 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.494. 0.416 0.350 0.296 0.250 0.212 0.180 0.396 0,331 0.194 0.475 0.277 0,232 0,164 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.375 0.295 0.233 0,184 0,146 0,116 0,092 0.308 0.23 0.174 0.13 0.099 0.075 0.057 0.208 0.142 0.097 0.067 0,046 0,032 0,022 0.141 0.087 0.054 0.034 0.02 0.013. 0.009 16% 7% 8% 19% 20% 25% 30% 35% 0.769 0.862 0,855 0.847 0,840 0.833 0.800 0.74 0.743 0.73 0.718 0.706 0.694 0.640 0.592 0.549 0.641 0,624 0.609 0,593 0.579 0.512 0,455 0.406 0.552 0.534 0.515 0.499 0.482 0.410 0.350 0.30 0.476 0.456 0.437 0.419 0.402 0.328 0.269 0.223 0.410 0.390 0.370 0.352 0.335 0.262 0.207 0.165 0.354 0.333 0.314 0.296 0.279 0.210 0.159 22 0.305 0.285 0.266 0.249 0.233 0.168 0.123 0.09 0.263 0.243 0.225 0.209 0.194 0.134 0.094. 0.067 0,227 0,208 0.19 0.176 0,162 0,107 0,073 0.050 0.195 0.178 0.162 0.148 0.135 0.086 0.056 0.037 0.168 0.152 0.137 0.124. 0.112 0.069 0.043 0.027 0.020 0.145 0.130 0.116 0.104. 0.093 0.055 0.033 0.125 0.11 0.099 0.088 0.078 0.044 0.025 0.015 0.108 0.095 0.084. 0.074 0.065 0.035 0.020 0.01 0.093 0.08 0.071 0.062 0.054 0.028 0.015 0.008 0.069 0.080 0.060 0.052 0.045 0.023 0.012 0.006 0.059 0.038 0,069 0.05 0.044 0,018 0,009 0.005 0.060 0.05 0.043 0.037 0.03 0.014 0.007 0.003 0,051 0,043 0.037 0.03 0,026 0,012 0,005 0.002 0.024 0.020 0.016 0.013 0.010 0.004 0.001 0.00 0.012 0,009 0.007 0.005 0,004 0.00 0.003 0.002 0.00 0.00 0.00 0.001 11% 0.901 0.812 0.73 0.659 0.593 0.535 0.482 434 0.391 0.352 0.317 0.286 0.258 0.232 0.209 0.188 0.170 0.153 0.138 0.124. 0,074 0.044 0.015 0.005 40% 0,714 0.510 0,364 0.260 0.186 0.133 0.095 0.068 0.048 0.035 0,025 0.018 0.013 0.009 0.006 0,005 0.003 0.002 0.002 0.00 12% 0.893 0,797 0.712 0,636 0.567 0.507 0.452 404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0,116 0.104. 0.059 0.033 0.0 0.003 50% 0.667 0.444 0.296 0.198 0.132 0.088 0.059 0.039 0.026 0,017 0.012 0.008 0.005 0.003 0.002 0.002 0.001 0.00
