1- A firm is evaluating an investment that costs $90,000 and is expected to generate annual cash flows equal to $20,000 for the next 6 years. If the firms required rate if return is 10 percent, what is the net present value (NPV) of the project? What is the internal rate of return? Should the project be purchased?

2-What is the traditional payback period (PB) of a project that costs $450,000 if it is expected to generate $120,000 per year for five years? If the firms required rate if return is 11 percent, what is the projects discounted payback period (DPB)?

3-Compute the internal rate of return and the modified internal rate of return for each of the following capital budgeting projects. The firms required rate of return is 14%.

year project G Project J Project K

0 $(180,000) $(240,000) $(200,000)

1 80,100 0 (100,000)

2 80,100 0 205,000

3 80,100 368,500 205,000

Which projects should be the purchase if all are independent? Which project should be purchased if they are mutually exclusive?

4- Following are the estimated after-tax cash flows for two mutually exclusive projects:

Following are the estimated after-tax cash flows for two mutually exclusive projects:

year Machine D Machine Q

0 $(32,500) $(29,800)

1 20,500 4,000

2 10,000 9,000

3 6,500 16,000

4 7,800 19,500

The company's rate of return is 16 percent. What is the internal rate of return (IRR) of the projects the company shoul purchase?

5- Compute the (a) NPV, (b) IRR, (c) MIRR, and (d) discounted payback for the following independent capital budgeting projects. (r=9%)

year Project T Project U

0 $(8,000) $(10,000)

1 2,000 9,000

2 1,000 5,000

3 7,000 (3,100)

Which project(s) should the company purchase? why?