Gonzalez Company is considering two new projects with the following net cash flows. The company's required rate of return on investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Net Cash Flows Year Project 1 Initial investment $(42,000) 1. 10,500 27,800 18,500 2. 3. Project 2 $(78,000) 35,000 15,000 35,000 a. Compute payback period for each project. Based on payback period, which project is preferred? b. Compute net present value for each project. Based on net present value, which project is preferred? Complete this question by entering your answers in the tabs below. Required A Required B Compute payback period for each project. Based on payback period, which project is preferred? Note: Cumulative net cash outflows must be entered with a minus sign. Do not round your intermediate calculations. Round your Payback Period answer to 2 decimal places. Project 1 Project 2 Year Net Cash Flows Cumulative Net Cash Flows Net Cash Flows Cumulative Net Cash Flows Initial investment $ (42,000) $ (42,000) $ (78,000) $ (78,000)
Gonzalez Company is considering two new projects with the following net cash flows. The company's required rate of return on investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Net Cash Flows Year Project 1 Initial investment $(42,000) 1. 10,500 27,800 18,500 2. 3. Project 2 $(78,000) 35,000 15,000 35,000 a. Compute payback period for each project. Based on payback period, which project is preferred? b. Compute net present value for each project. Based on net present value, which project is preferred? Complete this question by entering your answers in the tabs below. Required A Required B Compute payback period for each project. Based on payback period, which project is preferred? Note: Cumulative net cash outflows must be entered with a minus sign. Do not round your intermediate calculations. Round your Payback Period answer to 2 decimal places. Project 1 Project 2 Year Net Cash Flows Cumulative Net Cash Flows Net Cash Flows Cumulative Net Cash Flows Initial investment $ (42,000) $ (42,000) $ (78,000) $ (78,000)
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 11P
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Transcribed Image Text:Gonzalez Company is considering two new projects with the following net cash flows. The company's required rate of return on
investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1)
Note: Use appropriate factor(s) from the tables provided.
Net Cash Flows
Year
Project 1
Initial investment
$(42,000)
1.
10,500
27,800
18,500
2.
3.
Project 2
$(78,000)
35,000
15,000
35,000
a. Compute payback period for each project. Based on payback period, which project is preferred?
b. Compute net present value for each project. Based on net present value, which project is preferred?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Compute payback period for each project. Based on payback period, which project is preferred?
Note: Cumulative net cash outflows must be entered with a minus sign. Do not round your intermediate calculations. Round
your Payback Period answer to 2 decimal places.
Project 1
Project 2
Year
Net Cash Flows
Cumulative Net
Cash Flows
Net Cash
Flows
Cumulative
Net Cash
Flows
Initial investment
$
(42,000) $
(42,000) $
(78,000) $
(78,000)
<Prev
14
of 20
Transcribed Image Text:Required A
Required B
Compute net present value for each project. Based on net present value, which project is preferred?
Note: Round your present value factor to 4 decimals. Round your final answers to the nearest whole dollar.
Net Cash
Flows
Present Value
Present Value of Net
Factor
Cash Flows
Project 1
Year 1
$
EA
Year 2
S
Year 3
Totals
Initial investment
Net present value
Project 2
Year 1
Year 2
Year 3
Totals
Initial investment
Net present value
10,500
0.9091
$
SA
27,800
0.8264
18,500
0.7513
$
56,800
EA
9,546
22,974
13,899
$
46,419
(42,000)
SA
$
4,419
$
SA
35,000
0.9091
$
31,819
15,000
0.8264
12,396
35,000
0.7513
26,296
$
85,000
$
70,511
(78,000)
$
(7,489)
Based on net present value, which project is preferred?
Project 1
< Required A
Required B >
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