X-treme Vitamin Company is considering two investments, both of which cost $42,000. The cash flows are as follows: Project A $44,000 15,000 15,000 Project B $42,000 14,000 20,000 Year 1 3 Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a-1. Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.) Payback Period Project A Project B year(s) year(s) a-2. Which of the two projects should be chosen based on the payback method?
X-treme Vitamin Company is considering two investments, both of which cost $42,000. The cash flows are as follows: Project A $44,000 15,000 15,000 Project B $42,000 14,000 20,000 Year 1 3 Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a-1. Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.) Payback Period Project A Project B year(s) year(s) a-2. Which of the two projects should be chosen based on the payback method?
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:X-treme Vitamin Company is considering two investments, both of which cost $42,000. The cash flows are as follows:
Project A
$44,000
15,000
15,000
Year
Project B
$42,000
14,000
20,000
2.
Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a-1. Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.)
Payback Period
year(s)
Project A
Project B
year(s)
a-2. Which of the two projects should ce chosen based on the payback method?
Transcribed Image Text:b-1. Calculate the net present value for Project A and Project B. Assume a cost of capital of 8 percent. (Do not round intermediate
calculations and round your final answers to 2 decimal places.)
Net Present Value
Project A
Project B
b-2. Which of the two projects should be chosen based on the net present value method?
O Project B
O Project A
c. Should a firm normally have more confidence in the payback method or the net present value method?
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