Kaleb Konstruction, Inc., has the following mutually exclusive projects availabl

Question

Kaleb Konstruction, Inc., has the following mutually exclusive projects available. The company has historically used a three-year cutoff for projects. The required return is 12 percent.

Calculate the payback period for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

Calculate the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

Kaleb Konstruction, Inc., has the following mutually exclusive projects available. The company has historically used a three-year cutoff for projects. The required return is 12 percent.

Explanation / Answer

Project F

Project G

Based on 3 year cut off the company should accept Project F.

However NPV of Project G is more than NPV of Project F, that means cash flow from Project G is more , Cash Flow is more iportant while making capital budgeting decision, hence Project G should be accepted.

Year Cash Flows Cumulatuve Cash Flows PV of $ 1 @12% PV of Cash Flows 0 -141000.00 -141000.00 1.00 -141000.00 1 57000.00 -84000.00 0.8929 50895.30 2 53000.00 -31000.00 0.7972 42251.60 3 63000.00 32000.00 0.7118 44843.40 4 58000.00 90000.00 0.6355 36859.00 5 53000.00 143000.00 0.5674 30072.20 NPV 63921.50

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