The Bolster Company is considering two mutually exclusive projects:
Year Initial Outlay NPV
0 -$100,000 -$100,000
1 31,250 0
2 31,250 0
3 31,250 0
4 31,250 0
5 31,250 200,000
The required rate of return on these projects is 12 percent.
a. What is each project's payback period?
b. What is each project's discounted payback period?
c. What is each project's net present value?
d. What is each project's internal rate of return?
e. Fully explain the results of your analysis. Which project do you prefer, and why?
a. Payback of A = 3.2 years Payback of B = 4.5 years
b. Discounted Payback of A = 4.29 Discounted Payback of B = 4.88
b. NPV of A = $12,649.26 NPV of B = $13,485.37
c. IRR of A = 16.99% IRR of B = 14.87%
d. B is preferred because it has the greatest positive NPV.
You might also like to view...
During the norming stage of group development:
a. members generally express dissatisfaction due to unclear expectations. b. group members are reluctant to participate in group work. c. there is more division and less collaboration. d. the work climate is not conducive to listening. e. the level of anxiety associated with interaction is generally reduced.
Le Sud Retailers has a current return on investment of 10% and the company has established an 8% minimum rate of return for the division. The division manager has two investment projects available, for which the following estimates have been made:
Project A - Annual controllable margin = $24,000, operating assets = $400,000 Project B - Annual controllable margin = $60,000, operating assets = $550,000 Which project should be funded? a) Both projects b) Project A c) Project B d) Neither project