1) Compute the Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent and the maximum allowable payback is 5 years.

TIME: 0 1 2 3 4 5

CASH FLOW: - 75 - 75 0 100 75 90

2) Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent.

TIME: 0 1 2 3 4 5

CASH FLOW: - 75 - 75 0 100 75 90

3) Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

TIME: 0 1 2 3

Project A CF: $ - 10,000 $ 10,000 $ 30,000 $ 3,000

Project B CF: $ - 30,000 $ 10,000 $ 20,000 $ 50,000

Use the Profitability Index (PI) decision rule to evaluate these