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Kaleb Konstruction, Inc., has the following mutually exclusive projects available. The company has historically used a three-year cutoff for projects. The required return is 12 percent.Year Project F Project G0 –$ 126,000 –$ 196,000 1 64,500 44,500 2 45,500 59,500 3 55,500 85,500 4 50,500 115,500 5 45,500 130,500 Required:(a) Calculate the payback period for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)Payback period Project F years Project G years(b) Calculate the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)Net present value Project F $ Project G $ (c) Which project should the company accept?

Respuesta :

The payback period for project F is 2.29 years and the payback period for project G is 4.06 years.

The NPV for project F is $65,277 and the NPV for project G is $99,473.93.

The company should choose project G.

What is the payback period?

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Payback for project G:

Amount invested: -196,000

  • Amount recovered in year 1 : 44,500 - 196,000 = -151,500
  • Amount recovered in year 2 : -151,500 + 59,500 = - 92,000
  • Amount recovered in year 3 : - 92,000 + 85,500 = -6500
  • Amount recovered in year 4 : -6500/ 115,500 = 0.06

Payback period = 4.06 years

Payback for project F:

  • Amount invested: -126,000
  • Amount recovered in year 1 : 64500 - 126,000 = -61,500
  • Amount recovered in year 2 : -61,500 + 45,500 = -16,000
  • Amount recovered in year 3 : -16,000 / 55,500 = 0.29

Payback period = 2.29 years

What is the NPV ?

Net present value is the present value of after-tax cash flows from an investment less the amount invested. When choosing between projects that have a positive NPV, choose the project with the higher NPV first because it is the most profitable.

NPV can be calculated using a financial calculator

Project F:

  • Cash flow in year 0 = –$ 126,000
  • Cash flow in year 1 = 64,500
  • Cash flow in year 2 = 45,500
  • Cash flow in year 3 =  55,500
  • Cash flow in year 4 = 50,500
  • Cash flow in year 5 = 45,500
  • I = 12%

npv = $65,277

Project G:

  • Cash flow in year 0 = -196,000
  • Cash flow in year 1 =  44,500
  • Cash flow in year 2 = 59,500
  • Cash flow in year 3 = 85,500
  • Cash flow in year 4 = 115,500
  • Cash flow in year 5 =  130,500
  • I = 12%

NPV =$99,473.93

To learn more about the payback period, please check: https://brainly.com/question/25716359

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