Davidsons Incorporated is using Payback Period and Net Present Value (NPV) methods for investment decision making for small projects. The cut-off period will remain at 3 years. The net after tax cash flows of the projects are as follows: Cash Flows Initial Cost Year 1 Year 2 Year 3 Project 1 £10,000 £4,000 £4,000 £4,000 Project 2 £15,000 £7,000 £5,500 £4,000 Project 3 £8,000 £3,000 £3,500 £4,000 a) Calculate the NPV of each project at 10% discount rate. Given the above four projects' cash flows and using a 10% discount rate, which projects that would have been accepted under Payback Period will now be rejected under Net Present Value? Project 4 £18,000 £10,000 £11,000 £0
Davidsons Incorporated is using Payback Period and Net Present Value (NPV) methods for investment decision making for small projects. The cut-off period will remain at 3 years. The net after tax cash flows of the projects are as follows: Cash Flows Initial Cost Year 1 Year 2 Year 3 Project 1 £10,000 £4,000 £4,000 £4,000 Project 2 £15,000 £7,000 £5,500 £4,000 Project 3 £8,000 £3,000 £3,500 £4,000 a) Calculate the NPV of each project at 10% discount rate. Given the above four projects' cash flows and using a 10% discount rate, which projects that would have been accepted under Payback Period will now be rejected under Net Present Value? Project 4 £18,000 £10,000 £11,000 £0
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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Hi I was given this exercise but I am really struggling to get the numbers right, is there any chance I could have this explained ? thank you so much
Transcribed Image Text:Davidsons Incorporated is using Payback Period and Net Present Value
(NPV) methods for investment decision making for small projects. The
cut-off period will remain at 3 years.
The net after tax cash flows of the projects are as follows:
Cash Flows
Initial Cost
Year 1
Year 2
Year 3
Project 1
£10,000
£4,000
£4,000
£4,000
Project 2
£15,000
£7,000
£5,500
£4,000
Project 3
£8,000
£3,000
£3,500
£4,000
a) Calculate the NPV of each project at 10% discount rate. Given
the above four projects' cash flows and using a 10% discount rate,
which projects that would have been accepted under Payback
Period will now be rejected under Net Present Value?
Project 4
£18,000
£10,000
£11,000
£0
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