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FM11 24 - Period Cash Flows Cash Flows Cumulative...

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Answers and Solutions: 11 - 24 Payback B (cash flows in thousands): Annual Period Cash Flows Cumulative 0 ($25,000) $25,000) 1 20,000 (5,000) 2 10,000 5,000 3 8,000 13,000 4 6,000 19,000 Payback B = 1 + $5,000/$10,000 = 1.50 years. b. Discounted payback A (cash flows in thousands): Annual Discounted @10% Period Cash Flows Cash Flows Cumulative 0 ($25,000) ($25,000.00) ($25,000.00) 1 5,000 4,545.45 ( 20,454.55) 2 10,000 8,264.46 ( 12,190.09) 3 15,000 11,269.72 ( 920.37) 4 20,000 13,660.27 12,739.90 Discounted Payback A = 3 + $920.37/$13,660.27 = 3.07 years. Discounted payback B (cash flows in thousands): Annual Discounted @10%
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Unformatted text preview: Period Cash Flows Cash Flows Cumulative 0 ($25,000) ($25,000.00) ($25,000.00) 1 20,000 18,181.82 ( 6,818.18) 2 10,000 8,264.46 1,446.28 3 8,000 6,010.52 7,456.80 4 6,000 4,098.08 11,554.88 Discounted Payback B = 1 + $6,818.18/$8,264.46 = 1.825 years. c. NPV A = $12,739,908; IRR A = 27.27%. NPV B = $11,554,880; IRR B = 36.15%. Both projects have positive NPVs, so both projects should be undertaken. d. At a discount rate of 5%, NPV A = $18,243,813. At a discount rate of 5%, NPV B = $14,964,829. At a discount rate of 5%, Project A has the higher NPV; consequently, it should be accepted....
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