1.

project	initial cost (incurred at beginning of year 1)	Project life	Salvage value	Positive annual cash flow (received at the end of each year)
A	$200000	16 years	$0	$28000
B	$56000	14 years	$0	$9783

B is higher than the Internal Rate of Return of project A.

Required:

A) Is the NPV for Project A higher than, equal to, or lower than, the NPV for Project

B, assuming a 10% discount rate?

B) Is the Payback Period for Project A better than, equal to, or worse than, the

Payback Period for Project B?

C) Is the Accounting Rate of Return for Project A higher than, equal to, or lower

than, the Accounting Rate of Return for Project B, assuming straight-line

depreciation?

D) If the discount rate is 11% instead of 10%, which project has the higher NPV?

E) If the discount rate is 10%, and both projects have a salvage value of $66,000

(i.e., the equipment for Project B actually appreciates), which project would have

the higher NPV?

2.: A merchandising company expects to sell 300 units in April, 400 units in May, and

500 units in June. The company plans to have 30% of each months sales, plus an

additional 50 units, on hand in inventory at the beginning of each month. How many

units should the company plan to purchase in May?