Q1: A company plans to undertake an expansion project and is evaluating two prop
ID: 2618858 • Letter: Q
Question
Q1: A company plans to undertake an expansion project and is evaluating two proposals, A and B.
Proposal A Proposal B
Year 0 -$200,000 -$200,000
Year 1 $50,000 $70,000
Year 2 $50,000 $50,000
Year 3 $50,000 $45,000
Year 4 $50,000 $40,000
Year 5 $50,000 $40,000
Using the payback method which project would you select?
A. Project A because the payback period is 4 years
B. Project A because the payback period is 3.625 years.
C. Project B because the Payback period is 3.875 years
D. Project B because the payback period is 3.825 years.
Q2: A company plans to undertake an expansion project and is evaluating two proposals, A and B.
Proposal A Proposal B
Year 0 -$150,000 -$150,000
Year 1 $50,000 $60,000
Year 2 $50,000 $55,000
Year 3 $50,000 $50,000
Year 4 $50,000 $40,000
Year 5 $50,000 $35,000
Since the previous answer gave results, what is the cross-over rate?
A. 16.94%
B. 17.20%
C. 16.66%
D. 16.20%
Q3: The following two projects are made available for your analysis.
Year A B
0 -75,000 -55,000
1 30,000 22,000
2 27,000 13,200
3 38,000 36,667
Using the discounted payback method, which project would you select using an 8% discount rate?
A. Project A: 2.694 years
B. Project A: 2.798 years
C. Project B: 2.681 years
D. Project B: 2.8009 years
B. Project A because the payback period is 3.625 years.
C. Project B because the Payback period is 3.875 years
D. Project B because the payback period is 3.825 years.
Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations PBP Proposal A Proposal B Time Amount Cumulative Amount Cumulative - (200,000.00) (200,000.00) (200,000.00) (200,000.00) 1.00 50,000.00 (150,000.00) 70,000.00 (130,000.00) 2.00 50,000.00 (100,000.00) 50,000.00 (80,000.00) 3.00 50,000.00 (50,000.00) 45,000.00 (35,000.00) 4.00 50,000.00 - 40,000.00 5,000.00 5.00 50,000.00 50,000.00 40,000.00 45,000.00 Payback period 4 Years 3 + 35,000/40,000 Payback period 4 Years 3.875 Years C. Project B because the Payback period is 3.875 years Q3 B. Project A: 2.798 years Discounted PBP Proposal A Project B Time Amount PVf at 8% PV Cumulative Amount PV Cumulative - (75,000.00) 1.0000 (75,000.00) (75,000.00) (55,000.00) (55,000.00) (55,000.00) 1.00 30,000.00 0.9259 27,777.78 (47,222.22) 22,000.00 20,370.37 (34,629.63) 2.00 27,000.00 0.8573 23,148.15 (24,074.07) 13,200.00 11,316.87 (23,312.76) 3.00 38,000.00 0.7938 30,165.63 6,091.55 36,667.00 29,107.45 5,794.69 Discounted PBP 2 + 24074.07/30165.63 2 + 23312.76 /29107.45 Discounted PBP 2.7981 Years 2.8009 Years
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