Problem 9.19 Timeline Manufacturing Co. is evaluating two projects. The company

Question

Problem 9.19 Timeline Manufacturing Co. is evaluating two projects. The company uses payback criteria of three years or less. Project A has a cost of $935,240, and project B's cost is $1,126,400. Cash flows from both projects are given in the following table. Year Project A Project B 1$86,212 $586,212 313,562 413,277 427,594231,199 4 285,552 What are their discounted payback periods? (Round answers to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0.00 for the answer.) Discounted payback periods of project A Discounted payback periods of project B Which will be accepted with a discount rate of 8 percent? Timeline should choose Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Project A:

Present value of year 1 cash flow = 86,212 / ( 1 + 0.08) = 79,825.926

Present value of year 2 cash flow = 313,562 / ( 1 + 0.08)2 = 268,828.875

Present value of year 3 cash flow = 427,594 / ( 1 + 0.08)3 = 339,437.9033

Present value of year 4 cash flow = 285,552 / ( 1 + 0.08)4 = 209,889.245

Cumulative cash flow for year 0 = -935,240

Cumulative cash flow for year 1 = -935,240 + 79,825.926 = -855,414.074

Cumulative cash flow for year 2 = -855,414.074 + 268,828.875 = -586,585.199

Cumulative cash flow for year 3 = -586,585.199 + 339,437.9033 = -247,147.2957

Cumulative cash flow for year 4 = -247,147.2957 + 209,889.245 = -37,258.507

Payback period for project A is 0.00

Project B:

Present value of year 1 cash flow = 586,212 / ( 1 + 0.08) = 542,788.889

Present value of year 2 cash flow = 413,277 / ( 1 + 0.08)2 = 354,318.416

Present value of year 3 cash flow = 231,199 / ( 1 + 0.08)3 = 183,533.22

Cumulative cash flow for year 0 = -1,126,400

Cumulative cash flow for year 1 = -1,126,400 + 542,788.889 = -583,611.111

Cumulative cash flow for year 2 = -583,611.111 + 354,318.416 = -229,292.695

Cumulative cash flow for year 3 = -229,292.695 + 183,533.22 = -45,759.475

Payback period for project B is 0.00

Neither project should be accepted

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.