26 Jul CALCULATE THE DISCOUNTED PAYBACK PERIOD FOR BOTH PROJECTS AND DETERMINE WHICH SHOULD BE ACCEPTED.
You have a choice between two mutually exclusive investments. Project A requires initial cash outlay Show more You have a choice between two mutually exclusive investments. Project A requires initial cash outlay of $150000 and has projected cash flows of $100000 for year one $55000 for year two and $30000 for year three. Meanwhile Project B requires initial cash outlay of $100000 and has projected cash flows of $40000 per year for the next three years. The required rate of return is 10%. (a)(3 points) Calculate the ordinary payback period for both projects and determine which should be accepted. Assume the target payback period is 2 years. Explain why. (b) (4 points) Calculate the discounted payback period for both projects and determine which should be accepted. Assume the target payback period is 2 years Explain why. (c) (3 points) Calculate the profitability index (PI) for both projects and determine which should be accepted. Explain why. (d) (4 points) Assuming the projected cash flow is a future net income calculate the average accounting return (AAR) for both projects and determine which should be accepted if the target average accounting return is 30%. Explain why. Show less
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