Question

Calculate the NPV 8. Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown as follows. The required rate of return on projects of both of their risk class is 10 percent. and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three and a half years, respective Project A Cash Hlow -1.000 Projcet B Cash Flow -500 200 Use the paybacced si ure to evaluate these projeto ch one's) should be accepted or

Answer 1

Ans Choose Project B since Payback period in Project B is less than payback period of Project A

PROJECT A
Year	Cash Flow	Cumulative Cash Flow
0	-1000	-1000
1	300	-700
2	400	-300
3	700	400
TOTAL	400
Payback Period =	2 years + 300/700
	2.43 years
PROJECT B
Year	Cash Flow	Cumulative Cash Flow
0	-500	-500
1	200	-300
2	400	100
3	300	400
TOTAL	400
Payback Period =	1 YEAR + 300/400
	1.75 years