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Gonzalez Company is considering two new projects with the following net cash flows. The company's required rate of return on investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Year Initial investment 1. 2. 3. Net Cash Flows Project 1 $(42,000) 10,500 27,800 18,500 Project 2 $(78,000) 35,000 15,000 35,000 a. Compute payback period for each project. Based on payback period, which project is preferred? b. Compute net present value for each project. Based on net present value, which project is preferred?

Gonzalez Company is considering two new projects with the following net cash flows. The company's required rate of return on investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Year Initial investment 1. 2. 3. Net Cash Flows Project 1 $(42,000) 10,500 27,800 18,500 Project 2 $(78,000) 35,000 15,000 35,000 a. Compute payback period for each project. Based on payback period, which project is preferred? b. Compute net present value for each project. Based on net present value, which project is preferred?

Essentials Of Investments
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
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Exercise 11-9 (Algo) Payback period; net present value; unequal cash flows LO P1, P3 Gonzalez Company is considering two new projects with the following net cash flows. The company's required rate of return on investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Year Initial investment 1. 2. 3. Required A Required B Net Cash Flows a. Compute payback period for each project. Based on payback period, which project is preferred? b. Compute net present value for each project. Based on net present value, which project is preferred? Project 1 $(42,000) 10,500 27,800 18,500 Complete this question by entering your answers in the tabs below. Year Initial investment Year 1 Year 2 Year 3 Project 2 $(78,000) 35,000 15,000 35,000 Compute payback period for each project. Based on payback period, which project is preferred? Note: Cumulative net cash outflows must be entered with a minus sign. Do not round your intermediate calculations. Round your Payback Period answer to 2 decimal places. $ Project 1 Net Cash Flows Cumulative Net Cash Flows (42,000) $ 10,500 27,800 18,500 Payback period Project 1 Payback period Project 2 Payback period Based on payback period, which project is preferred? Net Cash Flows (42,000) $ Project 2 years years Cumulative Net Cash Flows (78,000) $ 35,000 15,000 35,000 (78,000) Project 1
Transcribed Image Text:Exercise 11-9 (Algo) Payback period; net present value; unequal cash flows LO P1, P3 Gonzalez Company is considering two new projects with the following net cash flows. The company's required rate of return on investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Year Initial investment 1. 2. 3. Required A Required B Net Cash Flows a. Compute payback period for each project. Based on payback period, which project is preferred? b. Compute net present value for each project. Based on net present value, which project is preferred? Project 1 $(42,000) 10,500 27,800 18,500 Complete this question by entering your answers in the tabs below. Year Initial investment Year 1 Year 2 Year 3 Project 2 $(78,000) 35,000 15,000 35,000 Compute payback period for each project. Based on payback period, which project is preferred? Note: Cumulative net cash outflows must be entered with a minus sign. Do not round your intermediate calculations. Round your Payback Period answer to 2 decimal places. $ Project 1 Net Cash Flows Cumulative Net Cash Flows (42,000) $ 10,500 27,800 18,500 Payback period Project 1 Payback period Project 2 Payback period Based on payback period, which project is preferred? Net Cash Flows (42,000) $ Project 2 years years Cumulative Net Cash Flows (78,000) $ 35,000 15,000 35,000 (78,000) Project 1
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