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    Payback Period of Project A Equals Which Total Investment 20,5000

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    Kamil Shamshad
    This document analyzes and compares two investment projects, Project A and Project B, based on their payback period, net present value (NPV), and profitability index (PI). It finds that: 1) Project B has a shorter payback period of 3 years and 243 days compared to Project A's payback period of 4 years and 1.5 months. 2) Project B has a higher NPV of $30,159 compared to Project A's NPV of $7,635, indicating Project B will generate more cash flows. 3) Project B has a higher PI of 1.15 compared to Project A's PI of 1.04, showing Project B is more profitable.

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    Payback Period of Project A Equals Which Total Investment 20,5000

    Uploaded by

    Kamil Shamshad
    34 views4 pages
    This document analyzes and compares two investment projects, Project A and Project B, based on their payback period, net present value (NPV), and profitability index (PI). It finds that: 1) Project B has a shorter payback period of 3 years and 243 days compared to Project A's payback period of 4 years and 1.5 months. 2) Project B has a higher NPV of $30,159 compared to Project A's NPV of $7,635, indicating Project B will generate more cash flows. 3) Project B has a higher PI of 1.15 compared to Project A's PI of 1.04, showing Project B is more profitable.

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    This document analyzes and compares two investment projects, Project A and Project B, based on their payback period, net present value (NPV), and profitability index (PI). It finds that: 1) Project B has a shorter payback period of 3 years and 243 days compared to Project A's payback period of 4 years and 1.5 months. 2) Project B has a higher NPV of $30,159 compared to Project A's NPV of $7,635, indicating Project B will generate more cash flows. 3) Project B has a higher PI of 1.15 compared to Project A's PI of 1.04, showing Project B is more profitable.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as doc, pdf, or txt
    34 views4 pages

    Payback Period of Project A Equals Which Total Investment 20,5000

    Uploaded by

    Kamil Shamshad
    This document analyzes and compares two investment projects, Project A and Project B, based on their payback period, net present value (NPV), and profitability index (PI). It finds that: 1) Project B has a shorter payback period of 3 years and 243 days compared to Project A's payback period of 4 years and 1.5 months. 2) Project B has a higher NPV of $30,159 compared to Project A's NPV of $7,635, indicating Project B will generate more cash flows. 3) Project B has a higher PI of 1.15 compared to Project A's PI of 1.04, showing Project B is more profitable.

    Copyright:

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    of 4

    (1) Payback period of project A equals which total investment 20,5000 Year Cash flow

    First year Second year Third year Forth year Fifth year

    60000 50000 40000 50000 40000

    Pay back period of project a equals to 5/40 *365= 45.6 so the pay back period is equals to 4year and 1 .months 16 days

    Payback period of project B equals which total investment 20,5000 Year Cash flow

    First year Second year Third year Forth year Fifth year

    80000 50000 45000 45000 45000

    Pay back period of project a equals to 30/45 *365= 243.33 so the pay back period is equals to 3 years .and 243 days of project B pay back period of investment .So according to pay back period of time project B should be selected by Volvo Company (2) Given a 0.7 discount rate = The total value of the project A by discounting its cash flow to present value PV=60000/1.07+ 50000/(1.07)^2 +40000/(1.07)^3+50000/(1.07)^4+40000/(1.07)^5 PV= 56074.77 + 57245 + 32651.9 +38144.76 +28519.45 PV= 212635.9
    project A

    NPV = 212635.9 205000 NPV = 7635.9

    Given a 0.7 discount rate = The total value of the project B by discounting its cash flow to present value PV=80000/1.07+ 50000/(1.07)^2 + 45000/(1.07)^3 + 45000/(1.07)^4 + 45000/(1.07)^5 PV= 235159.4 of project B

    PV=235159.4 project B
    NPV = 235159.4 205000 NPV = 30159.4 According to net present value B project is more profitable or have more cash flows compare to project A so company should accept project B

    (3 ) To find the profitability index we should first calculate the PV of future cash flows and divided with cost of the project If we want to calculate the PI of project A Cost of investment equals to = 205000 PV of Future cash flow =212635.9

    PI = 1.04 of Project A
    If we want to calculate the PI of project B Cost of investment equals to = 205000 PV of Future cash flow = 235159.4

    PI = 1.15 (4) According to the result payback period B project give all its investment before completing the 4th year but project A would not pay back all investment to the company before the 4th year so according to result B project is better than A According to NPV future cash flow of the project B are more then the project A so according to NPV .project B is better then project A When we calculate the price index we i observed that the profitability of project B (1.15) more then the project A (1.04) so Volvo company should select project B which is more beneficial for the company

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