Difference between discounted payback and npv approach

Assignment Help Financial Management

Reference no: EM131933812

A few small projects could be funded and the decision to be made is which should get the money. Rangi has been granted the use of $15,000 for a maximum of two years. She is considering three projects. Project A costs $7,500 and has cash flows of $4,000 a year for Years 1 to 3. Project B costs $8,000 and has cash flows of $3,000, $4,000, and $3,000 for Years 1 to 3, respectively. Project C costs $2,000 and has a cash inflow of $2,500 in Year 2.

a. What decisions should she make regarding these projects if she assigns them a mandatory discount rate of 8.5 percent?

b. Explain why your answers in a. above are correct.

c. What is the difference between discounted payback and NPV approach? Demonstrate with an example.

Reference no: EM131933812

Questions Cloud

Firm-wide discount rate for capital budgeting purposes : World Corporation has traditionally employed a firm-wide discount rate for capital budgeting purposes.

Tax rates decline explain the impact on the projects npv : If tax rates decline explain the impact on the Projects NPV. If the market value of the bonds dropped 2%, then what would be the impact on the NPV?

How firm capital structure relates to the firm beta : A firm’s capital structure refers to the firm’s. Explain how a firm’s capital structure relates to the firm’s beta.

Assume uncovered interest rate parity exists : The return relevant to the project is 7.8 percent in the U.K. and 8.1 percent in the U.S. Assume uncovered interest rate parity exists.

Difference between discounted payback and npv approach : What is the difference between discounted payback and NPV approach? Demonstrate with an example.

What will be the value of portfolio : What will be the value of your portfolio in January

What is maximum profit and loss for this position : The investor sells a call for $0.50 with a strike price of $40. What is the maximum profit and loss for this position?

Compute the gain and related tax on the sale : Compute the gain and related tax on the sale if the asset is sold now for $75,060.

Accept or reject the project based on the payback period : Would you accept or reject the project based on the Net Present Value (NPV)? Would you accept or reject the project based on the Payback Period?

User Account

All Pages