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NPV and Payback Period for two projects; which should be accepted

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The required return is 10% on an investment

Year Project F Project G
0 -175,000 -275,000
1 85,000 55,000
2 65,000 70,000
3 80,000 110,000
4 70,000 190,000
5 55,000 135,000

a) Calculate the payback period for both projects
b) Calculate the NPV for both projects
c) Which project should the company accept.

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Solution Summary

The expert examines NPV and payback periods for two projects. Which one should be accepted is determined.

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See attached Excel file.

1. Manually calculate payback period for both projects. To do so, subtract inflows from investment until we get to the year when the investment has been paid back. (The excel file has the calculations).

Year   Project F  
0        -175,000   
1           85,000      (175,000-85,000) = 90,000
2           65,000     (90,000 - 65,000) = ...

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