Question

Please respond to both pictures asap. I will THUMBS UP within the hour.

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ojects A and B, of equal risk, we alternatives for expanding Les Company's capacity. The firm's cost of capital is 14%. The cash flows for each project are shown in the following table: m Calculate each project's payback period, Calculate the net present value (NPV) for each project. Indicate which project you would recommend Data Table The payback period of project is yours. (Round to two decimal places) The payback period of project is yours. (Round to two decimal places) (Click on the con located on the top-right comer of the datatable below in order to The NPV of project Ass). (Round to the nearest cent) copy its contents into a spreadshot) Project A Project B The NPV of project is $. Round to the nearest cent) Initial investment $110,000 $80,000 c. (Select the best answer below. Which project will you recommend? Year (0 Cash Inflows (CF) O A Project $25,000 $25,000 OB Project B 2 $30,000 $25,000 3 $35.000 $25,000 4 $40,000 525.000 6 145.000 525.000 ICF) Print Done Click to select your answers

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Answer 1

A B C D חד וד G H — 1 2 Project B: Year 3 4 0 5 1 1) Project A: Year Cash flow Cumulative cash flow 0 -110000 -110000 1 25000 -85000 2 30000 -55000 3 35000 -20000 4 40000 20000 5 45000 65000 NPV 5692.65 6 2 Cash flow Cumulative cash flow -80000 -80000 25000 -55000 25000 -30000 25000 -5000 25000 20000 25000 45000 5827.02 7 3 8 4 9 5 NPV 10 a) Payback period of Project A = 3 + (20000 / 40000) = 3.50 Years Payback period of Project B = 3 + (5000 / 25000) = 3.20 Years 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 b) NPV of Project A = $5692.65 NPV of Project B = $5827.02 c) Project B should be accepted. 2) Payback period = ($50,000 / $15,000) = 3.3 Years

EXCEL FORMULA:

4 A B c. D E וד G H 1 2 3 1) Project A: Year Project B: Year 4 0 0 5 1 1 6 2 2 3 Cash flow Cumulative cash flow -110000 =C4 25000 |=D4+C5 30000 =D5+C6 35000 =D6+C7 40000 =D7+C8 45000 =D8+C9 =NPV(14%,C5:09)+C4 Cash flow -80000 25000 25000 25000 25000 25000 =NPV(14%, G5:G9)+G4 Cumulative cash flow =G4 =H4+G5 =H5+G6 =H6+G7 =H7+G8 =H8+G9 3 7 8 4 4 9 5 5 10 NPV NPV 11