2.You are considering two mutually exclusive projects with the following cash flows. The discount rate is 7.5percent:YEARPROJECT NPROJECT Y- P21,000,000- P21,000,00017,200,0008,500,000(a) Calculate the payback period of eachproject. ((b) Compute the net present value of thetwo projects.(c) Which project should be accepted?Justify your answer.24,900,0005,200,0009,100,0004,900,00046,100,0008,700,000

Payback Period: It is the period in which the project returns its initial outlay/cost. The lower…

Answered: (a) Calculate the payback period of…

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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Write the formula to evaluate the investment worth of projects?
When does the project reach the payback point?
1. State the criterion for accepting or rejecting independent projects under each of the following methods. - Profitability index - Discounted payback period - Accounting rate of return - Net present value - Payback period - Internal rate of return
When two mutually exclusive projects are being compared, explain why the short-term project might be ranged higher under the NVP criterion if the cost of the capital is high, whereas the long-term project might be deemed better if the cost of capital is low. Would changes in the cost of capital ever cause a change in the IRR ranking of two such projects? Why or why not?
In calculating the Net Present Value, the project would be acceptable if the outcome was: Group of answer choices Positive Positive or Zero Zero Negative
The use of natural resources in an economic activity involves setting up a project forharvesting (i.e. extracting) these resources. For the project to be viable, both economic andfinancial indicators - such as net present value (NPV) and internal rate of return (IRR)considering time value of money - are employed. a) Briefly explain the concept of "time value of money". b) Moreover, explain how you will use NPV and IRR to determine the viability of a project.
Indicate whether its True or False. Then write the explanation! The twin advantages with using the IRR method as opposed to the NPV method for project evaluation is that you don’t need to worry about what an appropriate risk- adjusted discount rate might be for the project and you will always get the correct answer to the investment decision.
Describe the Incremental Analysis for Cost-Only Projects?
What type of projects does the Payback method favor?
The average accounting rate of return (AAR): Select one: A. is the best method of financially analysing mutually exclusive projects. B. is similar to the return on assets ratio. C. measures net income as a percentage of the sales generated by a project. D. considers the time value of money. E. is the primary methodology used in analyzing independent projects.
e. IMPORTANT Note that from this example that a higher IRR for a nindividual alternative does not gurantee that the alternatvie is more economical than the one with a lower IRR. It is the incremental IRR value relative to the MARR that determines which alternative is more economical. The result of the incremental analysis are always the same as those of the PW,AW, or FW anaylsis
Financially, what is the economic worth of outbidding thecompetitors for a project?

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(a) Calculate the payback period of each project. ( ) (b) Compute the net present value of the two projects. ( (c) Which project should be accepted? Justify your answer.