1. Rank the projects by Payback Period, Discounted Payback Period, NPV, Profitability Index and IRR. 2. At what discount rate will Project 1 and Project 2 have the same NPV?
1. Rank the projects by Payback Period, Discounted Payback Period, NPV, Profitability Index and IRR. 2. At what discount rate will Project 1 and Project 2 have the same NPV?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:A corporation is considering two mutually exclusive projects. Both projects require the same
investment, but have different patterns of cash-inflow. The cash-flows are shown below for years 1
to 7. All cash-flows are in thousands of dollars. The corporation applies a 10% discount rate.
Project Number
2
Initial Investment -2,000 -2,000
Time
1
2
W N
3
4
5
1
6
7
1200
900
300
90
70
-350
-60
60
350
700
1200
2250
1. Rank the projects by Payback Period, Discounted Payback Period, NPV, Profitability Index
and IRR.
2. At what discount rate will Project 1 and Project 2 have the same NPV?
Expert Solution
Step 1
Sometimes there makes a problem to the company when there are two projects and on which there must be chosen only one project then company must evaluate both the projects and then the selection should be chosen which is usually based on the net present value.
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