a) Calculate the payback period for both products in years and months, not as a decimal. Please present answer to nearest month. b) Calculate NPV of both products (to 1 d.p.) assuming a discount rate of 7%. c) Which product should be chosen and why?
a) Calculate the payback period for both products in years and months, not as a decimal. Please present answer to nearest month. b) Calculate NPV of both products (to 1 d.p.) assuming a discount rate of 7%. c) Which product should be chosen and why?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
A company is thinking in investing in one of two potential new products for sale. The
projections are as follows:
| year | Revenue/cost £ (Product S) | Revenue/cost £ (Product V) |
| 0 | (150,000) outlay | (150,000) outlay |
| 1 | 14000 | 15000 |
| 2 | 24000 | 25333 |
| 3 | 44000 | 52000 |
| 4 | 84000 | 63333 |
a) Calculate the payback period for both products in years and months, not as a
decimal. Please present answer to nearest month.
b) Calculate NPV of both products (to 1 d.p.) assuming a discount rate of 7%.
c) Which product should be chosen and why?
d) Calculate the
e) Outline the advantages and disadvantages of the IRR and payback using
appropriate academic sources.
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