CHAPTER 8: PLEASE SHOW ALL WORK AND IF ASKED TO EXPLAIN PLEASE LEAVE A DETAILED RESPONSE WITH CLEAR UNDERSTANDING. PLEASE HIGHLIGHT ANSWERS AFTER ALL WORK IS DONE. CHAPTER 9: PLEASE SHOW ALL WORK AND...

Chapter8
    3)
    Payback Period
        Project A            Project B
    Year    Cashflow    Cum Cashflow    Net    Cashflow    Cum Cashflow    Net
    0    -75,000         -75,000    -125,000         -125,000
    1    33,000    33,000    -42,000    29,000    29,000    -96,000
    2    36,000    69,000    -6,000    32,000    61,000    -64,000
    3    19,000    88,000    13,000    35,000    96,000    -29,000
    4    9,000    97,000    22,000    240,000    336,000    211,000
    Payback Period of Project A    2.32
    Payback Period of Project B    3.12
    Based on above calculation, project A should be accepted over project B because of lower paybck period.
    6)
    NPV
    Year    Project A    Project B
    0    -75,000     -125,000
    1    33,000    29,000
    2    36,000    32,000
    3    19,000    35,000
    4    9,000    240,000
    Rate    9%
    NPV    6,623.02    125,587.74
    Yes, at 9% rate of return, company should accept both project since NPVs are positive
    Now,
    Rate    21%
    NPV    -8,215.22     52,541.73
    At 21%. Company should accept only Project B as its NPV is positive
    7)
    10)
    NPV vs IRR
    Year     Cashflow (A)     Cashflow (B)     Difference
    0    -77,500    -77,500    - 0
    1    43,000    21,000    22,000
    2    29,000    28,000    1,000
    3    23,000    34,000    -11,000
    4    21,000    41,000    -20,000
    a)
    IRR    21.50%    19.32%    12.21%
    Project A should be accepted
    b)
    Rate    11%
    NPV    15,426.54    16,012.82
    Project B should be accepted
    c)
    Project A for discount rates above 12.21%
    Project B for discount rates below 12.21%
    Discount Rate    12.21%
    14)
    Profitability Index
    a)
    Rate     11%
    Year    Cashflow (I)    Cashflow (II)    Present Value    PV of Cashflow (I)    PV of Cashflow...