Rafael Corporation has two projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% cost of capital Project AProject BInitial Cash OutflowPhp400,000Php400,000YearCash Inflows170,000190,0002100,000160,0003130,000130,0004160,000100,0005190,00070,000 1.Compute for the Payback Period of the two projects.2.Compute for the Net Present Value of the two projects.3.Considering the Payback Period and Net Present Value, Which of the two project would you recommend and why?

Solution:- Payback period means the period at which the summation of cash inflows from the project…

Answered: Rafael Corporation has two projects…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 7P

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Rafael Corporation has two 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
Initial Cash Outflow	Php400,000	Php400,000
Year	Cash Inflows
1	70,000	190,000
2	100,000	160,000
3	130,000	130,000
4	160,000	100,000
5	190,000	70,000

1.Compute for the Payback Period of the two projects.

2.Compute for the Net Present Value of the two projects.

3.Considering the Payback Period and Net Present Value, Which of the two project would you recommend and why?

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