I’m working on a accounting exercise and need an explanation and answer to help me learn.
Complete the following questions using Microsoft Excel. No other submission format is allowed. Review the grading rubric to confirm you are meeting the assignment requirements.
Paderborn Industries is considering two investment projects. The estimated cash flow in SARs for each project is as follows:
| Year |
Plant Expansion (7,500,000) |
(7,500,000) |
|
1 |
2,200,000 |
3,050,000 |
|
2 |
2,200,000 |
2,700,000 |
|
3 |
2,200,000 |
2,050,000 |
|
4 |
2,200,000 |
1,650,000 |
|
5 |
2,200,000 |
920,000 |
|
Total |
11,000,000 |
10,370,000 |
The company has decided that the appropriate discount rate is 10%.
Required:
- Calculate the payback for each project (to 3 decimal points).
- Calculate the Net Present Value (NPV) for each project.
- Calculate the Present Value Index (PI) for each project (round to 3 decimal places).
- Calculate the Internal Rate of Return (IRR) for each project (Round to 2 decimal places).
- Advise management on which, if either, project to pursue and why.
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