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# Computing Net Present Value and Payback Period

NEIL CORPORATION HAS 3 PROJECTS UNDER CONSIDERATION. THE CASH FLOWS FOR EA ITEM IS SHOWN. THE FIRM HAS 16% COST OF CAPITAL. All projects has a initial investment of \$40,000.

CASH FLOWS
Project A PROJECT B PROJECT C

1ST YEAR \$13,000 \$7,000 \$19,000
2ND " " \$13,000 \$10,000 \$16,000
3RD "" \$13,OOO \$13,O00 \$13,000
4T0 "" \$13,000 \$16,000 \$10,000
5TH "" \$13,000 \$19,000 \$7,000

A. CALCULATE THE PAYBACK PERIOD. WHICH IS PREFERRED ACCORDING TO THIS METHOD?
B. CALCULATE EACH PROJECT NPV. WHICH PROJECT IS PREFERRED ACCORDING TO THIS METHOD?
C. COMMENT ON YOUR FINDINGS IN PARTS A AND B RECOMMEND THE BEST PROJECT. EXPLAIN YOUR RECOMMENDATIONS.

#### Solution Preview

Because Project C provides both the fastest expected payback of ...

#### Solution Summary

Using an Excel 97-2003 spreadsheet, this solution illustrates the computation and comparison of the net present value of a project and its payback period.

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