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Computing The NPV, IRR And Discounted Payback Period

? Two projects being considered are mutually exclusive and have the following projected cash flows:

Project A Project B

Year Cash Flow Cash Flow

0 -$50,000 -$50,000
1 15,625 0
2 15,625 0
3 15,625 0
4 15,625 0
5 15,625 99,500
If the required rate of return on these projects is 10 percent, which would be chosen and why?

? Davis Corporation is faced with two independent investment opportunities. The corporation has an investment policy that requires acceptable projects to recover all costs within 3 years. The corporation uses the discounted payback method to assess potential projects and utilizes a discount rate of 10 percent. The cash flows for the two projects are:

Project A Project B

Year Cash Flow Cash Flow

0 -$100,000 -$80,000
1 40,000 50,000
2 40,000 20,000
3 40,000 30,000
4 30,000 0

In which investment project(s) should the company invest?

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Solution Summary

This solution illustrates how to compute the net present value, internal rate of return and discounted payback period of mutually exclusive projects.

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