1 A 2 Projected cash outflow 3 Net initial investment 4 Projected cash inflows 5 Year 1 6 Year 2 B C D Project A Project B Project C $ 4,000,000 $3,000,000 $4,000,000 $ 2,550,000 $ 800,000 $2,100,000 2,550,000 1,600,000 2,100,000 7 Year 3 2,550,000 1,000,000 50,000 8 Year 4 2,550,000 25,000 9 Required rate of return 6% 6% 6% Andrews Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $8,000,000 for the year. Larissa Berenstein, staff analyst at Andrews, is preparing an analysis of the three projects under consideration by Chris Andrews, the company's owner. (Click the icon to view the data for the three projects.) Present Value of $1 table Read the requirements. Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Benefits of the payback method: A. Easy to understand and captures uncertainty about expected cash flows in later years of a project B. Utilizes the time value of money and computes each project's unique rate of return OC. Indicates whether or not the project will earn the company's minimum required rate of return D. All of the above Limitations of the payback method: A. Cannot be used for projects with unequal periodic cash flows B. Fails to incorporate the time value of money and does not consider a project's cash flows after the payback period C. Cannot be used when management's required rate of return varies from one period to the next. D. All of the above b. Calculate the payback period for each of the three projects. Ignore income taxes. (Round your answers to two decimal places.) Project A Project B years years Project C years