Fuji Software, Inc., has the following mutually exclusive projects. Year Project

Question

Fuji Software, Inc., has the following mutually exclusive projects. Year Project A Project B 0 –$ 24,000 –$ 27,000 1 14,000 15,000 2 10,500 11,500 3 3,300 10,500 Calculate the payback period for each project. (Round your answers to 3 decimal places. (e.g., 32.161)) Payback period Project A years Project B years Which, if either, of these projects should be chosen? Project A Project B Both projects Neither project b-1. What is the NPV for each project if the appropriate discount rate is 17 percent? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) NPV Project A $ Project B $ b-2. Which, if either, of these projects should be chosen if the appropriate discount rate is 17 percent? Project A Project B Both projects Neither project

Explanation / Answer

Calculation of Payback Period Year Cash Flows 1 14000 14000 2 10500 24500 3 3300 27800 Payback Period = 1year + (24000-14000)/24500 1.408 Year Cash Flows 1 15000 15000 2 11500 26500 3 10500 37000 Payback Period = 2year + (27000-26500)/37000 2.014 Year Cash Flows PVF @ 17% PV 0 -24000 1 -24000 1 14000 0.8547 11966 2 10500 0.7305 7670 3 3300 0.6244 2060 NPV -2303 Year Cash Flows PVF @ 17% 0 -27000 1 -27000 1 15000 0.8547 12821 2 11500 0.7305 8401 3 10500 0.6244 6556 NPV 777

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