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Pay back period, NPV,IRR

Consider the following data on four mutually exclusive projects under consideration by the Thomas Company:

Year Project A Project B Project C Project D
0 -30,000 -60,000 -30,000 -60,000
1 10,000 18,000 15,000 5,000
2 10,000 18,000 12,000 11,000
3 10,000 18,000 10,000 20,000
4 10,000 18,000 5,000 30,000
5 10,000 18,000 -1,000 40,000

The cost of capital is 14%.

Calculate the following values for each project using the time value tables in the text:
· NPV
· IRR (round to the nearest whole percentage.)
· Profitability index
· Payback period

Question 1: What are the advantages and disadvantages of each method?

Question 2: Assume there is no capital rationing. If the projects are mutually exclusive, which will you choose? If the projects are complementary, which will you choose?

Question 3: Assume there IS capital rationing and the projects are mutually exclusive. You have $100,000 available. What projects will you select? Why?

Please show all your works. I need to understand how you did it step by step.

Solution Preview

hello,answer pl
Consider the following data on four mutually exclusive projects under consideration by the Thomas Company:

Year Project A  Project B  Project C  Project D
0    -30,000    -60,000     -30,000    -60,000
1     10,000     18,000      15,000     5,000
2     10,000     18,000      12,000     11,000
3     10,000     18,000      10,000     20,000
4     10,000     18,000       5,000     30,000
5     10,000     18,000      -1,000     40,000
Payabck method helps to findout which project can revover ther quikly the investment made.It is the good capital budgeting technique.

project A Project B project C project D disadvantages of pay back
10000 18000 15000 5000 1.. It ignores any benefits that occur after the payback ...

Solution Summary

The solution contains the computation of pay back period, net present value, Internal rate of return, advantages and disadvantages of all these three methods, decision when there is capital rationing and decision when there is no capital rationing.

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