c. Mangement is considering two hotel projects. Project A will be in Jamaica with an intial investment of $865,000 and Project B will be in Canada with an initial investment of $750,000.

Question

The cost of capital for Project A is 13% and the cost of capital for project B is 15%.
Calculate the following;
a) Calculate the discounted payback period of Project A.(2 Marks)

b) Calculate the discounted payback period of Project B. (2 Marks)

c) Calculate the net present value for Project A. (2 Marks)

d) Calculate the net present value for Project B. (2 Marks)
e) Managemet can only accept one project. Which project should management accept?

Answer 1

A)
YEARS INITIAL DISCOUNTED PAYBACK PAYBACK
0 -865,000 1 -865,000
1 316,000 316,000/1.13^1= 279,646.01 -585353.99
2 350,000 350,000/1.13^2=274,101.34 -311,252.65
3 (20,000) (20,000/1.13^3=-13,861.00 -325,113.65
4 280,000 280,000/1.13^4= 171,729.24 153,384.41