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PGMT Individual Assignment 2

Project A will cost $250,000 and generate $75,000 in annual cash flow, while Project B will cost $150,000 and generate $52,000 in annual cash flow. Using the payback period method, Project B is better from a cash flow standpoint with a payback period of less than 3 years, while Project A has a payback period of over 3 years. A recent project has cash flows of $20,000, $25,000, $30,000, and $50,000 over 4 years with a cost of $75,000. With a required rate of return of 20%, the NPV is negative, but the benefit-cost ratio is greater than 1. With 4

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Saurabh Puthran
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347 views

PGMT Individual Assignment 2

Project A will cost $250,000 and generate $75,000 in annual cash flow, while Project B will cost $150,000 and generate $52,000 in annual cash flow. Using the payback period method, Project B is better from a cash flow standpoint with a payback period of less than 3 years, while Project A has a payback period of over 3 years. A recent project has cash flows of $20,000, $25,000, $30,000, and $50,000 over 4 years with a cost of $75,000. With a required rate of return of 20%, the NPV is negative, but the benefit-cost ratio is greater than 1. With 4

Uploaded by

Saurabh Puthran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Individual Assignment (suggested level of effort: 1.

5 hours)
 
 
1.  Payback Analysis

Two new wind-farm tower projects are proposed for a small company that installs them
in south western Pennsylvania. Project A will cost $250,000 to complete and is
expected to have an annual net cash flow of $75,000. Project B will cost $150,000 to
complete and should generate annual net cash flows of $52,000. As a small company,
the owner and senior management team are very concerned about their cash flow.

Use the payback period method and determine which project is better from a cash flow
standpoint. 

Show your work and include any formulas used to calculate PP.
2.  Net Present Value
A recent project nominated for consideration at your company has a four-year cash flow
of $20,000; $25,000; $30,000; and $50,000. The cost of the project is $75,000.
a.  If the required rate of return is 20%, conduct a discounted cash flow calculation to
determine the NPV.

b.  What is the benefit-cost ratio for the project?


c.  What would the NPV of the above project be if the inflation rate was expected to be
4% in each of the next four years?
You will be assessed on the correctness of your calculations (40 points) and on
presenting your work and results in a professional manner (10 points)

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