Tutorial 8

Cashflow in € Cashflow in € for

Year
for Project A Project B
0 -200 -200
1 80 100
2 80 100
3 80 100
4 80
1.

a. Given the annual cashflows below, calculate the NPV of Project A and Project B
(rounded to two decimal places), using a cost of capital of 11%.
b. Which of these projects is worth pursuing?
c. Suppose that you can choose only one of these projects. Which would you
choose?
d. Which project should you choose if the cost of capital is 16%?

Yea
Cashflows A (in €) Cashflows B (in €)
r
0 -200 -200
1 80 100
2 80 100
3 80 100
4 80

2. What are the internal rates of return of projects A and B (express your answer as a
percentage rounded to 2 decimal places)? (you will need to use excel IRR function or a
financial calculator)
3. Is the project with the higher IRR the better project?
4. If the cost of capital is 11%, what is the profitability index for each project?
5. What is the payback period of each project? Is the project with the lower payback period
the better project?
6. What is the discounted payback period for each project, using a discount rate of 11%?