Payback and NPV Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% cost of capital. Project A Project B Project C Initial investment (CF0) −$40,000 −$40,000 −$40,000 Year (t) Cash inflows (CFt) 1 $13,000 $ 7,000 $19,000 2 13,000 10,000 16,000 3 13,000 13,000 13,000 4 13,000 16,000 10,000 5 13,000 19,000 7,000 Calculate each project’s payback period. Which project is preferred according to this method? Calculate each project’s net present value (NPV). Which project is preferred according to this method? Comment on your findings in parts aand b, and recommend the best project. Explain your recommendation.
Payback and NPV Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% cost of capital. Project A Project B Project C Initial investment (CF0) −$40,000 −$40,000 −$40,000 Year (t) Cash inflows (CFt) 1 $13,000 $ 7,000 $19,000 2 13,000 10,000 16,000 3 13,000 13,000 13,000 4 13,000 16,000 10,000 5 13,000 19,000 7,000 Calculate each project’s payback period. Which project is preferred according to this method? Calculate each project’s net present value (NPV). Which project is preferred according to this method? Comment on your findings in parts aand b, and recommend the best project. Explain your recommendation.
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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P10–12 Payback and NPV Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% cost of capital.
|
|
Project B |
Project C |
|
|
Initial investment (CF0) |
−$40,000 |
−$40,000 |
−$40,000 |
|
Year (t) |
|
||
|
1 |
$13,000 |
$ 7,000 |
$19,000 |
|
2 |
13,000 |
10,000 |
16,000 |
|
3 |
13,000 |
13,000 |
13,000 |
|
4 |
13,000 |
16,000 |
10,000 |
|
5 |
13,000 |
19,000 |
7,000 |
- Calculate each project’s payback period. Which project is preferred according to this method?
- Calculate each project’s
net present value (NPV). Which project is preferred according to this method? - Comment on your findings in parts aand b, and recommend the best project. Explain your recommendation.
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