Save Homework: Module 8: Chapter 10 7 of 8 (0 complete) Hw Score: 0%, 0 of 40 pt

Question

Save Homework: Module 8: Chapter 10 7 of 8 (0 complete) Hw Score: 0%, 0 of 40 pts Score: 0 of 5 pts P10-24 (similar to) All techniques-Decision among mutually exclusive investments Pound Industries is atempting to select the best of three mutually exclusive projects. The Question Help * initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flows Initial investment (CF) Cash inflows (CF), t = 1 to 5 Project A $30,000 S10.000 Project B 70,000 $21,000 Project C $60,000 $21,500 a. Calculate the payback period for each project b. Calculate the net present value (NPI) of each project, assuming that the firm has a cost of capital equal to 8%. c. Calculate the internal rate of return (IRR) for each project. d. Indicate which project you would recommend. The payback period of project A is years. (Round to two decimal places.) a. Enter your answer in the answer box and then click Check Answer. parts Clear All Check Answer

Explanation / Answer

(a) Payback period = Initial investment / Annual cash flows

(b) Net present value = Present value of cash inflows - Present value of cash outflows

PVAF of 8% for 5 years = 3.993

(c) IRR for uniform cash flows = Initial investment / Cash Inflows each year

(d) Project C is recommended as it has lower payback period and higher NPV.

Project A Project B Project C Payback period 3 years (30,000/10,000) 3.33 years (70,000/21,000) 2.79 years (60,000/21,500)

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

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