The Bolster Company is considering two mutually exclusive projects:
Year Initial Outlay NPV
0 -$100,000 -$100,000
1 31,250 0
2 31,250 0
3 31,250 0
4 31,250 0
5 31,250 200,000
The required rate of return on these projects is 12 percent.
a. What is each project's payback period?
b. What is each project's discounted payback period?
c. What is each project's net present value?
d. What is each project's internal rate of return?
e. Fully explain the results of your analysis. Which project do you prefer, and why?
a. Payback of A = 3.2 years Payback of B = 4.5 years
b. Discounted Payback of A = 4.29 Discounted Payback of B = 4.88
b. NPV of A = $12,649.26 NPV of B = $13,485.37
c. IRR of A = 16.99% IRR of B = 14.87%
d. B is preferred because it has the greatest positive NPV.
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