a. Project A costs $5,000 and will generate annual after-tax net cash inflows of $1,800 for five years. What is the payback period?

b. Project B costs $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three, $2,500 in year four, and $2,000 in year five. What is the payback period? Project C costs $5,000 and will generate net cash inflows of $2,500 before taxes for five years.

c. Project C costs $5,000 and has net cash inflows of $2,500 per year for five years. The firm uses straight-line depreciation with no salvage value and has 25 percent tax rate.

What is the payback period?

d. Project D costs $5,000 and will generate sales of $4,000 each year for five years. The cash expenditures will be $1,500 per year. The firm uses straight-line depreciation with an estimated salvage value of $500 and has a tax rate of 25 percent.

(1) What is the book rate of return based on the original investment?

(2) What is the book rate of return based on the average book value?

Requirements

What is the NPV for each of the projects A through D? Assume that the firm requires a minimum of

8 percent After-tax return on all investments.

Problem Information

Project A:
Cost …………………………………..	$5,000
Annual After-tax Cash Inflow …………..	$1,800
Life (Years) …………………………….	5
Project B:
Cost ……………………………………	$5,000
After-tax Cash Inflow, Yr. 1 ……………	$500
After-tax Cash Inflow, Yr. 2 …………….	$1,200
After-tax Cash Inflow, Yr. 3 ……………	$2,000
After-tax Cash Inflow, Yr. 4 ……………	$2,500
After-tax Cash Inflow, Yr. 5 ……………	$2,000
Project C:
Cost ……………………………………	$5,000
Net cash inflow per year ………………..	$2,500
Life (Years) …………………………….	5
Income-tax rate …………………………	25%
Project D:
Cost ……………………………………	$5,000
Sales, per year …………………………	$4,000
Cash expenditures, per year ……………	$1,500
Estimated salvage value ……………….	$500
Income-tax rate ………………………..	25%
Project life (in years) …………………..	5
Minimum rate of return on investment	8%
Annuity Factor, 4 years =	3.312
Annuity Factor, 5 years =	3.993
PV Factors (from Appendix C, Table 1):
Yr 1 =	0.926
Yr 2 =	0.857
Yr 3 =	0.794
Yr 4 =	0.735
Yr 5 =	0.681