Fuji Software, Inc., has the following mutually exclusive projects. Year Project
ID: 2724793 • Letter: F
Question
Fuji Software, Inc., has the following mutually exclusive projects.
Year Project A Project B
0 -$22,000 -$25,000
1 13,000 14,000
2 9,500 10,500
3 3,100 9,500
Calculate the payback period for each project. (Round your answers to 3 decimal places. (e.g., 32.161))
Project A(in years)
Project B (in years)
Which, if either, of these projects should be chosen?
Project A
Project B
Both
Neither
What is the NPV for each project if the appropriate discount rate is 16 percent? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))
Project A
Project B
Which, if either, of these projects should be chosen if the appropriate discount rate is 16 percent?
Project A
Project B
Both
Neither
Explanation / Answer
Payback periods
project A
cash outlay= $ 22,000 cash inflow= year 1 $13,000 y 2 $ 9,500 y 3 $ 3,100
payback period = cash outlay/ cash inflow
cash inflow of year 1 and 2= $ 22,500 but we need $ 22,000 to equate with cash outlay
during the 2 year the firm earned $ 9500
to earn $ 9000 how much time it will take = 11.36 months
so the pay back period project A= 1 year 11.36 months
Payback period of project B
project outlay= $ 25,000 year 1 cash flow $ 14,000 year 2 cash flow $ 10,500 year 3 9,500
cash flow of year 1 and 2 = $ 24,500 we need $ 500 to equate
during year 3 the earnings are $ 9,500
to earn $ 500 it takes =18.96 days
so the payback period of project B= 2 years 18.96 days
among project A and B project A's payback period is less ,hence project A is acceptable
NPV of project A=
-$ 22,000+13000(16%,1)+9500(16%,2)+3100(16%,3)
-$22,000+13000(0.862)+9500(0.743)+3100(0.641)
- $ 22000+20,251.60= -$ 1748.40
NPV of project B
-$ 25000+14000(0.862)+10500(0.743)+9500(0.641)
-$ 25000+25959= $ 959
so project B has a positive NPV project B is choosen
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