1.

Assume a $40,000 investment and the following cash flows for two alternatives.

Year	Investment X			Investment Y
1	$	6,000		$	15,000
2		8,000			20,000
3		9,000			10,000
4		17,000
5		20,000

a. Calculate the payback for investment X and Y. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

2.

The Short-Line Railroad is considering a $140,000 investment in either of two companies. The cash flows are as follows:

Year	Electric Co.			Water Works
1	$	85,000		$	30,000
2		25,000			25,000
3		30,000			85,000
410		10,000			10,000

a. Compute the payback period for both companies.

3.

ou are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 14 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Project X (Videotapes of the Weather Report) ($20,000 Investment)						Project Y (Slow-Motion Replays of Commercials) ($40,000 Investment)
Year		Cash Flow				Year		Cash Flow
1		$	10,000			1		$	20,000
2			8,000			2			13,000
3			9,000			3			14,000
4			8,600			4			16,000

a. Calculate the profitability index for project X. (Do not round intermediate calculations and round your answer to 2 decimal places.)

b. Calculate the profitability index for project Y. (Do not round intermediate calculations and round your answer to 2 decimal places.)