(d) Now suppose that your discount rate is 5% per year for both projects. If projects A and B are mutually exclusive which project will you accept, if any? (e) Calculate Payback Period for project A and Payback Period for project B. (f) Suppose that the payback cutoff for both projects is 3.5 years, which project (if any) should be accepted using payback periods rule? (Disregard NPV and IRR rules in answering this question)
You are considering investment in the following projects. Assume that your discount rate is 12% per year for both projects.
Project A’s
|
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
-$12,000 |
$7,000 |
$3,000 |
$2,000 |
$1,500 |
Project B’s cash flows
|
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
-$11,000 |
$6,000 |
$2,500 |
$1,500 |
$1,200 |
(d) Now suppose that your discount rate is 5% per year for both projects. If projects A and B are mutually exclusive which project will you accept, if any?
(e) Calculate Payback Period for project A and Payback Period for project B.
(f) Suppose that the payback cutoff for both projects is 3.5 years, which project (if any) should be accepted using payback periods rule? (Disregard NPV and
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
