Question

A firm has a WACC of 11% and is deciding between two mutually
exclusive projects. Project A has an initial investment of $61. The
additional cash flows for project A are: year 1 = $15, year 2 =
$37, year 3 = $67. Project B has an initial investment of $73.The
cash flows for project B are: year 1 = $56, year 2 = $42, year 3 =
$21. Calculate the **payback** and
**NPV** for **each project**. (Show all
answers to 2 decimals)

Answer #1

PAYBACK PERIOD:

PROJECT A | ||

Year | CASH FLOWS | CUMULATIVE RETURN PROJECT A |

0 | -63 | -63 |

1 | 17 | -46 |

2 | 37 | -9 |

3 | 61 | 52 |

TOTAL | 52 | |

Payback Period = | 2 YEARS + 9/61 | |

2.15 YEARS |

PROJECT B | ||

Year | CASH FLOWS | CUMULATIVE RETURN PROJECT B |

0 | -73 | -73 |

1 | 58 | -15 |

2 | 41 | 26 |

3 | 37 | 63 |

TOTAL | 63 | |

Payback Period = | 1 YEAR + 15/41 | |

1.37 YEARS |

NPV:

A
firm has a WACC of 8% and is deciding between two mutually
exclusive projects. Project A has an initial investment of $63. The
additional cash flows for project A are: year 1 = $20, year 2 =
$39, year 3 = $67. Project B has an initial investment of $73.The
cash flows for project B are: year 1 = $60, year 2 = $45, year 3 =
$32. Find the Payback and NPV for each project

A firm has a WACC of 8% and is deciding between two mutually
exclusive projects. Project A has an initial investment of $63. The
additional cash flows for project A are: year 1 = $20, year 2 =
$39, year 3 = $67. Project B has an initial investment of $73.The
cash flows for project B are: year 1 = $60, year 2 = $45, year 3 =
$32.
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