X-treme Vitamin Company is considering two investments, both of which cost $22,000. The cash flows are as follows:
Year Project A Project B 1 $ 25,000 $ 22,000 2 12,000 11,000 3 8,000 14,000
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 year(s) Project B year(s)
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
X-treme Vitamin Company is considering two investments, both of which cost $22,000. The cash flows are as follows:
| Year | Project A | Project B | ||||
| 1 | $ | 25,000 | $ | 22,000 | ||
| 2 | 12,000 | 11,000 | ||||
| 3 | 8,000 | 14,000 | ||||
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.)
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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.)
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Related questions
| X-treme Vitamin Company is considering two investments, both of which cost $44,000. The cash flows are as follows: |
| Year | Project A | Project B | ||||
| 1 | $ | 46,000 | $ | 38,000 | ||
| 2 | 17,000 | 18,000 | ||||
| 3 | 13,000 | 15,000 | ||||
| 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 | year(s) |
| Project B | year(s) |
| a-2. | Which of the two projects should be chosen based on the payback method? | ||||
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| 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? | ||||
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| c. | Should a firm normally have more confidence in the payback method or the net present value method? | ||||
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You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 11 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
| Project X (Videotapes of the Weather Report) ($22,000 Investment) | Project Y (Slow-Motion Replays of Commercials) ($42,000 Investment) | |||||||||
| Year | Cash Flow | Year | Cash Flow | |||||||
| 1 | $ | 11,000 | 1 | $ | 21,000 | |||||
| 2 | 9,000 | 2 | 14,000 | |||||||
| 3 | 10,000 | 3 | 15,000 | |||||||
| 4 | 9,600 | 4 | 17,000 | |||||||
a. Calculate the profitability index for project X. (Do not round intermediate calculations and round your answer to 2 decimal places.)
b. Calculate the profitability index for project Y. (Do not round intermediate calculations and round your answer to 2 decimal places.)
c. Which project would you select?
| Project X | |
| Project Y |
| Consider the following two mutually exclusive projects: |
| Year | Cash Flow (A) | Cash Flow (B) | |||||
| 0 | �$ | 345,000 | �$ | 48,500 | |||
| 1 | 50,000 | 24,500 | |||||
| 2 | 70,000 | 22,500 | |||||
| 3 | 70,000 | 20,000 | |||||
| 4 | 445,000 | 15,100 | |||||
| Whichever project you choose, if any, you require a 14 percent return on your investment. |
| a-1 | What is the payback period for each project? (Round your answers to 2 decimal places. (e.g., 32.16)) |
| Payback period | ||
| Project A | years | |
| Project B | years | |
| b-1 | What is the discounted payback period for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
| Discounted payback period | ||
| Project A | years | |
| Project B | years | |
| c-1 | What is the NPV for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16) |
| NPV | ||
| Project A | $ | |
| Project B | $ | |
| d-1 | What is the IRR for each project? (Round your answers to 2 decimal places. (e.g., 32.16)) |
| IRR | ||
| Project A | % | |
| Project B | % | |
| e-1 | What is the profitability index for each project? (Do not round intermediate calculations and round your final answers to 3 decimal places. (e.g., 32.161)) |
Please explain how you calculated each step.
