Chapter 5,
Question #1,
oseph Software, Inc., has the following mutually exclusive projects.
Year
Project A
Project B
0
–$22,000
–$25,000
1
13,000
14,000
2
9,500
10,500
3
3,100
9,500
a-1.
Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)
Payback period
Project A
years
Project B
years
a-2.
Which, if either, of these projects should be chosen?
Project A
Project B
Both projects
Neither project
b-1.
What is the NPV for each project if the appropriate discount rate is 16 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
NPV
Project A
$
Project B
$
b-2.
Which, if either, of these projects should be chosen if the appropriate discount rate is 16 percent?
Project A
Project B
Both projects
Neither project
Answer:#2
Jennifer Silence, Inc., has a project with the following cash flows:
Year
Cash Flow
0
–$
28,100
1
12,100
2
15,100
3
11,100
The required return is 15 percent. What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
IRR
%
Should the firm accept the project?
Accept
Reject
Answer:#3
Nap plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $390,000, to be paid immediately. Bill expects aftertax cash inflows of $85,000 annually for six years, after which he plans to scrap the equipment and retire to the beaches of Nevis. The first cash inflow occurs at the end of the first year. Assume the required return is 10 percent.
What is the project’s profitability index (PI)? (Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.)
PI
Answer: #4
Berlik investment project has annual cash inflows of $3,400, $4,300, $5,500, and $4,700, and a discount rate of 13 percent.
What is the discounted payback period for these cash flows if the initial cost is $6,100? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Discounted payback period
years
What is the discounted payback period for these cash flows if the initial cost is $8,200? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Discounted payback period
years
What is the discounted payback period for these cash flows if the initial cost is $11,200? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Discounted payback period
years
Answer:#5
Compute the internal rate of return for the cash flows of the following two projects (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.):
Year
Project A
Project B
0
–$
15,300
–$
12,900
1
6,000
3,200
2
6,800
9,700
3
5,600
5,200
Internal rate of return
Project A
Project B
Answer: