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Comparing Investment Criteria

Comparing Investment Criteria

Consider the following two mutually exclusive projects:
Year Cash Flow A Cash Flow B
0 -$257,851 -$31,827
1 25,500 11,483
2 57,000 12,954
3 51,000 11,412
4 405,000 9,674

Whichever project you choose, if any, you require a 15 percent return on your investment.

Required:

(a) The payback period for Projects A and B is and years, respectively. (Round your answers to 2 decimal places, e.g. 32.16.)

(b) The discounted payback period for Projects A and B is and years, respectively. (Round your answers to 2 decimal places, e.g. 32.16.)

(c) The NPV for Projects A and B is $ and $ , respectively. (Round your answers to 2 decimal places, e.g. 32.16.)

(d) The IRR for Projects A and B is percent and percent, respectively. (Do not include the percent sign (%). Round your answers to 2 decimal places, e.g. 32.16.)

(e) The profitability index for Projects A and B is and , respectively. (Round your answers to 3 decimal places, e.g. 32.161.)

(f) Based on your answers in (a) through (e), you will finally choose Project

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Comparing Investment Criteria

Consider the following two mutually exclusive projects:
Year Cash Flow A Cash Flow B
0 -$257,851 -$31,827
1 25,500 11,483
2 57,000 12,954
3 51,000 11,412
4 405,000 9,674

Whichever project you choose, if any, you require a 15 percent return on your investment.

Required:

(a) The payback period for Projects A and B is and years, respectively. (Round your answers to 2 decimal places, e.g. 32.16.)

Payback period is defined as the expected number of years ...

Solution Summary

This solution is comprised of a detailed explanation to calculate the NPV, IRR, payback, profitability index, and discounted payback for two mutually exclusive projects.

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