Essentials Of Investments
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ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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P10–24 ALL TECHNIQUES, CONFLICTING RANKINGS Nicholson Roofing Materials Inc. is considering two mutually exclusive projects that both cost $150,000. The company’s board of directors has set a maximum four-year payback requirement, the cost of capital is 9%. The project cash flows appear below.
a. Calculate the payback period for each project.
b. Calculate the NPV of each project at 0%.
c. Calculate the NPV of each project at 9%.
Transcribed Image Text:The table presents the cash inflows (\(CF_t\)) for two projects, A and B, over a period of six years.
### Cash inflows (\(CF_t\))
| Year | Project A | Project B |
|------|-----------|-----------|
| 1 | $45,000 | $75,000 |
| 2 | $45,000 | $60,000 |
| 3 | $45,000 | $30,000 |
| 4 | $45,000 | $30,000 |
| 5 | $45,000 | $30,000 |
| 6 | $45,000 | $30,000 |
**Analysis:**
- **Project A:** Consistently receives $45,000 each year from year 1 to year 6.
- **Project B:** Starts with a larger inflow of $75,000 in the first year, decreases to $60,000 in the second year, and remains at $30,000 from the third year through the sixth year.
This table could be used for comparative analysis of the long-term cash flow potential of each project.
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Can you show how the NPV for project B was calculated. Still need to understand how answer was achieved. Maybe showing formula in excel. Thanks
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Can you show how the NPV for project B was calculated. Still need to understand how answer was achieved. Maybe showing formula in excel. Thanks
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