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Q) A firm has a WACC of 14.49% and is deciding between two mutually exclusive projects....

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Finance

Q) A firm has a WACC of 14.49% and is deciding between twomutually exclusive projects. Project A has an initial investment of$60.09. The additional cash flows for project A are: year 1 =$19.19, year 2 = $38.50, year 3 = $47.11. Project B has an initialinvestment of $70.51. The cash flows for project B are: year 1 =$54.40, year 2 = $48.97, year 3 = $20.74. Calculate theFollowing:

1)payback period for Project A

2)Payback period for Project B

3)NPV for project A

4) NPV for project B

Answer & Explanation Solved by verified expert
4.3 Ratings (858 Votes)

ans 1 & 2
Cumulative cash flow
year Project A Project B Project A Project B
0 -60.09 -70.51 -60.09 -70.51
1 19.19 54.4 -40.9 -16.11
2 38.5 48.97 -2.4 32.86
3 47.11 20.74 44.71 53.6
Payback period
A =2+(2.4/47.11)          2.05 year
B =1+(16.11/48.97)          1.33 year
ans 3 &4
year Project A Project B PVIF @ 14.49% present value A present value B
0 -60.09 -70.51     1.0000      (60.09)      (70.51)
1 19.19 54.4     0.8734       16.76       47.52
2 38.5 48.97     0.7629       29.37       37.36
3 47.11 20.74     0.6663       31.39       13.82
      17.43       28.18
NPV A       17.43
NPV B       28.18

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Transcribed Image Text

Q) A firm has a WACC of 14.49% and is deciding between twomutually exclusive projects. Project A has an initial investment of$60.09. The additional cash flows for project A are: year 1 =$19.19, year 2 = $38.50, year 3 = $47.11. Project B has an initialinvestment of $70.51. The cash flows for project B are: year 1 =$54.40, year 2 = $48.97, year 3 = $20.74. Calculate theFollowing:1)payback period for Project A2)Payback period for Project B3)NPV for project A4) NPV for project B

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