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.
Fundamentals of Financial Management (MindTap Course List)
14th Edition
ISBN:9781285867977
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 17P: EQUIVALENT ANNUAL ANNUITY A firm has two mutually exclusive investment projects to evaluate; both...
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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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