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Capital Budgeting e-Activity

1. Based on the e-Activity, if your superior negated your analysis and chose Project B due to payback period, explain how you would justify the financial implications in choosing Project A.

2. Based on the e-Activity and your response above, revise Project B so as to make it an acceptable alternative to Project A.

(In your justification, explain why you think Project A would be a better choice than Project B. Explain the details related to the critical acceptance level and payback period). (Please reply in 100 words or more for each question)

3. Using the e-Activity and your response to Discussion 1, revise Project B as an alternative approach to using the payback period of Project A. In the discussion, please explain front loading a project, Payback Period, IRR, and NPV for each.

Please break out the answers as follows:

Project A Project B
Payback Period X years X years
Internal Rate of Return x% x%
Net Present Value $ $

Part I: (6 min 43 s)
Part II: (6 min 20 s)
Part III: (5 min 8 s)
Part IV: (6 min 31 s)

Thank you! I appreciate your assistance!

Solution Preview

1. Project A has payback period of 1.75 years and Project B has payback period of 3.75 years. So going by the concept of payback period we should choose project A as it has early payback. Project A has outflow of $200,000 while project B has outflow of $400,000. Project A has maximum inflow of $120,000 in the first year itself. Hence, benefits are received early in the life of project which is more in real terms than same benefits which are given by project B in distant ...

Solution Summary

The expert examines capital budgeting and e activity.