Choosing between two projects with acceptable payback periods Shell Camping Gear, Inc

Subject:FinancePrice: Bought3

Share With

Choosing between two projects with acceptable payback periods Shell Camping Gear, Inc., is considering two mutually exclusive projects. Each requires an initial investment of $180,000. John Shell, president of the company, has set a maximum payback period of 4 years. The cash inflows associated with each project are shown in the following table a. Determine the payback period of each project. b. Which project is acceptable based on payback period? a. The payback period of project Ais years. (Round to two decimal places.) The payback period of project B is years. (Round to two decimal places.) b. Which project is acceptable based on payback period? (Select the best answer below.) O Project A would be preferred over project 8 because the larger cash flows are in the later years of the project. O Project B would be preferred over project A because the larger cash flows are in the early years of the project. ? Data table (Click on the icon here into a spreadsheet.) in order to copy the contents of the data table below Year 1 2 3 4 Cash inflows (CF) Project A Project B $30,000 $80.000 $40.000 $50,000 $50.000 $40,000 $60,000 $30,000 $30,000 $30,000 10 5 Internal rate of return Peace of Mind, Inc. (PMI) sells extended warranties for durable consumer goods. When PMI sells an extended warranty, it receives cash up front but later PMI must cover any repair costs that arise. An analyst working for PMI is considering a warranty for a new line of big-screen TVs. A consumer who purchases the 2-year warranty will pay PMI $206. On average, the repair costs that PMI must cover will average $105 for each for the warranty's 2 years. If PMI has a cost of capital of 7%, should it sell this warranty? The internal rate of return (IRR) for this project is % (Round to two decimal places.) The NPV of this project is $. (Round to two decimal places.) If PMI has a cost of capital of 7%, should it sell this warranty for sale? (Select the best answer below.) A. With a cost of capital of 7% and an IRR of 1.29% and a NPV of $16.16. PMI should sell this warranty. B. With a cost of capital of 1.29% and an IRR of 7%. PMI should not sell this warranty. OC. With a cost of capital of 1.29% and an IRR of 7%, PMI should sell this warranty. OD. With a cost of capital of 7% and an IRR of 1.29%, and and NPV of $16. 16. PMI should not sell this warranty