A Firm Evaluates All Of Its Prox ucation.com/hm.tpx Problem 8-21 NPV and Payback

Question

A Firm Evaluates All Of Its Prox ucation.com/hm.tpx Problem 8-21 NPV and Payback Period [LO 1, 4] 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 11 percent -$134,000 $204,000 40,500 55,500 89,500 60,500 49,500 59,500 54,500 49,500 119,500 134,500 a. Calculate the payback period for both projects. (Do not round i s and round your answers to 2 decimal places, e.g., 32.16.) Project G b. Calculate the NPV for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places Project G c. Which project, if any, should the company accept? proposed 1 Basic

Explanation / Answer

Project F:

Payback period = 2 + 24000/59500 = 2.403361345 = 2.40 Years

NPV = $69,462.38

Project G:

Payback period = 3 + 18500/119500 = 3.154811715 = 3.15 years

NPV = $101,510.72

Though project G does not recover its investment in three years, it is better because of its higher NPV which will create higher wealth to investors.

Year CF (F) CF (G) Commu CF (F) Commu CF (G) 0 -134,000 -204,000 -134,000 -204,000 1 60,500 40,500 -73,500 -163,500 2 49,500 55,500 -24,000 -108,000 3 59,500 89,500 35,500 -18,500 4 54,500 119,500 90,000 101,000 5 49,500 134,500 139,500 235,500 NPV @ 11% 69,462.38 101,510.72

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.