Question 1 - Assume a $70,000 investment and the following cash flows for two alternatives.
|
Year
|
Investment X
|
Investment Y
|
|
1
|
$15,000
|
$35,000
|
|
2
|
24,000
|
25,000
|
|
3
|
30,000
|
15,000
|
|
4
|
20,000
|
-
|
|
5
|
25,000
|
-
|
a. Calculate the payback for investment X and Y.
b. Which alternative would you select under the payback method?
- Investment X
- Investment Y
Question 2 - King's Department Store is contemplating the purchase of a new machine at a cost of $23,105. The machine will provide $3,600 per year in cash flow for ten years. King's has a cost of capital of 11 percent. Use Appendix D for an approximate answer but calculate your final answer using the financial calculator method.
a. What is the internal rate of return?
b. Should the project be undertaken?
Question 3 - Assume a $72,000 investment and the following cash flows for two alternatives.
|
Year
|
Investment A
|
Investment B
|
|
1
|
$25,000
|
$22,000
|
|
2
|
25,000
|
15,000
|
|
3
|
15,000
|
50,000
|
|
4
|
10,000
|
-
|
|
5
|
30,000
|
-
|
a. Calculate the payback for investment A and B.
b. Which investment would you select under the payback method?
- Investment A
- Investment B
c. If the inflow in the fifth year for Investment A was $30,000,000 instead of $30,000, would your answer change under the payback method?
Note - Do not round intermediate calculations. Round your answers to 2 decimal places.