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

a)

Payback is the time period to recover the initial investment outlay with the undiscounted future cash flows of the project.

Project F payback period = 2 + 16000/55500 = 2.288 yrs

Project G payback period = 3 + 6500/115500 = 3.05627 yrs

b)

c) Company should carry out project G as it has a greater NPV

Year Project F Project F cumulative cash flow Project G Project J Cumulative cash flow 0 -126000 -126000 -196000 -196000 1 64500 -61500 44500 -151500 2 45500 -16000 59500 -92000 3 55500 39500 85500 -6500 4 50500 90000 115500 109000 5 45500 135500 1,30,500 239500

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