1. MGT 326 HW 5
1. What is the Discounted Payback Period of a project with the cash flows depicted below? The firm’s WACC is 5.8%
4.875
$170k
$145k
$130k
$89k
$94k 1 2 3 4 5 6
$50k
$370k
2. What is the NPV of the above project? The firm’s WACC is 5.8% $83.01 1 1

2. NPVA = $25.80 Accept Project A; highest NPV NPVB = $24.36
MGT 326 HW 5 Solution
3. A firm is considering two mutually exclusive projects that have the annual cash flows shown below. Based on NPV analysis, which project should be accepted? The required rate of return is %
Year 1 2 3 4 5 6
Project A
CFs
-$60.00
$18.00
Project B
-$45.00
$30.00
NPVA = $25.80 Accept Project A; highest NPV
NPVB = $24.36

3. The NPV of Project A is: -$13.86 The NPV of Project B is: -$32.18
4. A firm is considering two mutually exclusive projects that have the annual cash flows shown below. Project A is a moderately risky project while Project B is considered to have a high degree of risk.
The firm’s WACC is 7.34%. The firm uses the risk-adjusted discount rate method to account for project risk. Projects posing minimal risk are evaluated using WACC for the discount rate. Using the WACC as a base, 1.25% is added for moderately risky projects and 2.50% is added for significantly risky projects.
The NPV of Project A is: -$13.86
The NPV of Project B is: -$32.18
Year
Proj A
Proj B
-$215.00
-$295.00 1
$65.00
$57.00 2
$63.00
$75.00 3
$60.00
$97.00 4
$110.00
Which project should be adopted?