X-treme Vitamin Company is considering two investments both of which cost $42.00
ID: 2760724 • Letter: X
Question
X-treme Vitamin Company is considering two investments both of which cost $42.000 The cash flows are as follows Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods Calculate the payback period foe Project A and Project B (Round your answers to 2 decimal places.) Which of the two projects should be chosen based on the payback method? Calculate the net present value for Project A and Project B Assume a cost of capital of 8 percent (Do not round intermediate calculations and round your final answers to 2 decimal places.) Which of the two projects should be chosen based on the net present value method? Project A Project B Should a firm normally have more confidence in the payback method or the net present value method? Payback method Net present value methodExplanation / Answer
calculation of payback method
payback period for project a is = 0+42,000/44,000
= 0.9545 years
payback period for project b is = 1+4,000/14,000
= 1+0.2857years
= 1.2857 years
as per payback method basis project a is better.
calculation of npv =
as per npv method project a is better than project b
c)npv method is more confidence method as per equilent interest rate for long period otherwise payback methos is better
years project a cash flows project a cumilative cash flows project b cash flows project b cumulative cash flows 0 $ (42,000) $ (42,000) $ (42,000) $ (42,000) 1 $ 44,000 $ 2,000 $ 38,000 $ (4,000) 2 $ 15,000 $ 17,000 $ 14,000 $ 10,000 3 $ 15,000 $ 32,000 $ 20,000 $ 30,000Related Questions
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