# sof - The payback period for any project the the time in...

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12 a Payback period is the time in which the whole project cost is recovered. Project A = 100000/32000 = 3.125 year Project B = 4.5 years b NPV 5 Project A = -100000 + ∑ 32000 (1.15) pwr t = \$18268 T=0 Project B = -100000 + 200000(1.15) pwr 5 = -\$564 c IRR 5 Project A 0 = -100000 + ∑ 32000 (1+r) pwr t T=0 R = 18.03% Project B 0 = -100000 + 200000(1+r) pwr 5 R = 14.87% d Ranking conflict is caused because Project A generates the cash flow consistently throughout the project life whereas Project B generates it only at the end of project life. e Project A should be accepted because it has positive NPV and higher IRR.
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Unformatted text preview: The payback period for any project the the time in which we could recover the project cost. In case of project B for first 4 years there is no cash flow and hence no recovery but in fifth year there is a cash inflow of 200000. It is assumed that this 200000 occurs proportionately for the whole year and hence 100000 is recovered by year end. 100000/200000 = .5 years.Thus the payback period for this project becomes 4 years + . 5 year = 4.5 years....
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