A corporation is considering two mutually exclusive projects. Both projects require the sameinvestment, but have different patterns of cash-inflow. The cash-flows are shown below for years 1to 7. All cash-flows are in thousands of dollars. The corporation applies a 10% discount rate.Project Number2Initial Investment -2,000 -2,000Time12W N34516712009003009070-350-6060350700120022501. Rank the projects by Payback Period, Discounted Payback Period, NPV, Profitability Indexand IRR.2. At what discount rate will Project 1 and Project 2 have the same NPV?

Answered: 1. Rank the projects by Payback Period,…

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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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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