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  • Calculations For Report 1 (Capital Budgeting) : Payback Period For Project A

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    rubsrayli
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    The document calculates various metrics for evaluating two capital budgeting projects, Projects A and B. It calculates the payback period, discounted payback period, net present value (NPV), and internal rate of return (IRR) for each project using a 12% cost of capital. It finds that Project A has an NPV of $31,740 and IRR of 20.96%, while Project B has an NPV of $34,191 and IRR of 23.9%, indicating that Project B may be the better investment opportunity.

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    Calculations Shravi

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    The document calculates various metrics for evaluating two capital budgeting projects, Projects A and B. It calculates the payback period, discounted payback period, net present value (NPV), and internal rate of return (IRR) for each project using a 12% cost of capital. It finds that Project A has an NPV of $31,740 and IRR of 20.96%, while Project B has an NPV of $34,191 and IRR of 23.9%, indicating that Project B may be the better investment opportunity.

    Copyright:

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    Download as DOCX, PDF, TXT or read online from Scribd
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    16 views5 pages

    Calculations For Report 1 (Capital Budgeting) : Payback Period For Project A

    Uploaded by

    rubsrayli
    The document calculates various metrics for evaluating two capital budgeting projects, Projects A and B. It calculates the payback period, discounted payback period, net present value (NPV), and internal rate of return (IRR) for each project using a 12% cost of capital. It finds that Project A has an NPV of $31,740 and IRR of 20.96%, while Project B has an NPV of $34,191 and IRR of 23.9%, indicating that Project B may be the better investment opportunity.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 5

    Calculations for Report 1 (Capital budgeting)

    Payback period for project A:

    Timeline of cash Flows

    Year

    0 1 2 3 4 5

    Cash flow ($110000) 20000 30000 40000 50000 70000

    Cumulative ($110000) (90000) (60000) (20000) 30000

    Payback period (years) - (year before + Unrecovered cost at start of year

    Full Recovery) Cash Flow During year

    Payback period (years) - 3 + ($20000/$50000)

    - 3.4 Years

    Payback period for Project B:

    Timeline of cash Flows

    Year

    0 1 2 3 4 5

    Cash flow ($110000) 40000 40000 40000 40000 40000

    Cumulative ($110000) (70000) (30000) 10000

    Payback period (years) - (year before + Unrecovered cost at start of year

    Full Recovery) Cash Flow During year

    Payback period (years) - 2 + ($30000/$40000)


    - 2.75 Years

    Discounted Payback period for project A (12% cost of capital):

    Timeline of cash Flows

    Year

    0 1 2 3 4 5

    Cash flow ($110000) 20000 30000 40000 50000 70000

    Present value of each CF ($110000) 17857 23916 28471 31776 39720

    Cumulative ($110000) 92143 68227 39756 7980 (31740)

    Discounted Payback period:

    Payback period (years) - (Year Before + Unrecovered Cost at Start of Year

    Full Recovery) Cash Flow during Year

    Payback period (years) - 2 + ($68227/$28471)

    - 2 + 2.396
    - 4.396 Years

    Discounted Payback period for project B(12% cost of capital)

    Timeline of cash Flows

    Year

    0 1 2 3 4 5

    Cash flow ($110000) 40000 40000 40000 40000 40000

    Present value of each CF ($110000) 35714 31888 28471 25421 22697

    Cumulative ($110000) 74286 42398 13927 (11494)


    Discounted Payback period:

    Payback period (years) - (Year Before + Unrecovered Cost at Start of Year

    Full Recovery) Cash Flow during Year

    Payback period (years) - 2 + ($42398/$28471)

    - 2 + 1.489
    - 3.489 Years

    Net present value for Project A: (12% cost of capital):

    Timeline of cash Flows

    Year

    0 1 2 3 4 5

    Cash flow ($110000) 20000 30000 40000 50000 70000

    Present Value 17857

    Present Value 23916

    Present Value 28471

    Present Value 31776

    Present Value 39720

    Net Present Value $31740


    Net present value for Project B: (12% cost of capital)(in $)

    Timeline of cash Flows

    Year

    0 1 2 3 4 5

    Cash flow ($110000) 40000 40000 40000 40000 40000

    Present Value 35714

    Present Value 31888

    Present Value 28471

    Present Value 25421

    Present Value 22697

    Net Present Value $34191


    Graph of NPV for Project A and Project B:

    55000

    50000

    45000

    40000

    35000

    30000 NPV for Project A


    25000 NPV for Project B

    20000

    15000

    10000

    5000

    0
    8 10 12 14 16

    Internal Rate of Return (12% Cost of Capital):

    Project A Project B
    NPV IRR NPV IRR
    31740 20.96% 34191 23.9%

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