Part D-1 MUST have instructions followed to get the correct answer: DO NOT ROUND
ID: 2713961 • Letter: P
Question
Part D-1 MUST have instructions followed to get the correct answer: DO NOT ROUND INTERMEDIATE COMPUTATIONS AND ROUND TO 2 DECIMAL POINTS
Here are the expected cash flows for three projects:
Cash Flows (dollars)
If the opportunity cost of capital is 12%, calculate the NPV for projects A, B, and C. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Part D-1 MUST have instructions followed to get the correct answer: DO NOT ROUND INTERMEDIATE COMPUTATIONS AND ROUND TO 2 DECIMAL POINTS
Here are the expected cash flows for three projects:
Explanation / Answer
Cash Flows (dollars) Project Year 0 Year 1 Year 2 Year 3 Year 4 A -5,300 1,075 1,075 3,150 0 B -1,300 0 1,300 2,150 3,150 C -5,300 1,075 1,075 3,150 5,150 Ans a. Project Payback Period in years A 3 B 2 C 3 Ans b. If cut off payback period is 2 years, only Project B will be selected Ans c. If cut off period of 3 years is the only criterion, Projcet A,B,C all will be accepted as all of them have payback of 3 years or less d1. Cash Flows (dollars) Project Year 0 Year 1 Year 2 Year 3 Year 4 Discounting factor @12% 1 0.893 0.797 0.712 0.636 A -5,300 1,075 1,075 3,150 0 PV of Cash flows -5,300 960 857 2,242 0 NPV Project A $ (1,241) B -1,300 0 1,300 2,150 3,150 PV of Cash flows -1,300 0 1,036 1,530 2,002 NPV of Project B $ 3,269 C -5,300 1,075 1,075 3,150 5,150 PV of Cash flows (5,300) 960 857 2,242 3,273 NPV of project C $ 2,032 d1. Project NPV $ A (1,241) B 3,269 C 2,032 d2. Project B & Project C have positive NPV.
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