Copy of NPV%2C+IRR%2C+PB%2C+PI

Copy of NPV%2C+IRR%2C+PB%2C+PI - a) What is the payback...

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a) What is the payback period? Payback period is defined as the expected number of years required to recover the original investmen Project A Period 0 1 2 3 Net cash flow -1,250,000 350,000 350,000 350,000 Cumulative NCF -1,250,000 -900,000 -550,000 -200,000 Payback = Cash flow during year = 3 + 200,000/350,000 = 3.57 years Project B Period 0 1 2 3 Net cash flow -1,400,000 400,000 400,000 400,000 Cumulative NCF -1,400,000 -1,000,000 -600,000 -200,000 Payback = Cash flow during year = 3 + 200,000/400,000 = 3.50 years b) What is the net present value of the two projects? Project A Project B Cash Flow Years Cash Flow Cash Flow Years Cash Flow 0 (1,250,000) 0 (1,400,000) 1 350,000 1 400,000 2 350,000 2 400,000 3 350,000 3 400,000 4 350,000 4 400,000 5 350,000 5 400,000 6 350,000 6 400,000 7 350,000 7 400,000 8 350,000 8 400,000 9 350,000 9 400,000 10 350,000 10 400,000 11 350,000 11 400,000 12 350,000 12 400,000 13 350,000 13 400,000 14 350,000 14 400,000 15 350,000 15 400,000 16 350,000 16 400,000 17
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This note was uploaded on 07/18/2011 for the course FI 515 taught by Professor Watson during the Spring '09 term at Keller Graduate School of Management.

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Copy of NPV%2C+IRR%2C+PB%2C+PI - a) What is the payback...

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