Answer:
Instructions are listed below.
Explanation:
Giving the following information:
The company has historically used a three-year cutoff for projects. The required return is 10 percent.
Year - Project F - Project G
0: $150,000 - $235,000
1: 78,000 - 54,000
2: 54,000 - 72,000
3: 68,000 - 103,000
4: 60,000 - 139,000
5: 54,000 - 156,000
A) Payback period: it is the necessary time to recover the initial investment.
Project F:
Io= -150,000
Year 1= +78,000= -72,000
Year 2= +54,000= -18,000
Year 3=+68,000= 50,000
We have to determine the number of days:
(18,000/68,000)= 0.26*365= 95 days
It will take 3 years and 95 days to recover the initial investment
Project G:
Io= -235,000
Year 1= +54,000= -181,000
Year 2= +72,000= -109,000
Year 3= +103,000= -6,000
Year 4= +139,000= 133,000
We have to determine the number of days:
(6,000/139,000)= 0.043*365= 16 days
It will take 4 years and 16 days.
2) To calculate the Net present value, we need to discount the cash flows.
NPV= -Io + ∑[Cf/(1+i)^n]
Cf= cash flow
Project F:
NPV= -150,000 + 78,000/1.10 + 54,000/1.10^2 + 68,000/1.10^3 ...
NPV= $91,137.15
Project G:
NPV= -235,000 + 54,000/1.10 + 72,000/1.10^2 + ...
NPV= $142,783.06
