1. Smith and Company are considering investing in a project to streamline their production process. The cash flows are shown below. The required rate of return for projects of this class is 8%.

Time 0 1 2 3 4 5 6

Cash flow -200,000 55,000 65,000 10,000 35,000 25,000 10,000

Use only the NPV decision rule to evaluate this project.

Should the project be accepted or rejected? Calculate the NPV.

2.Given the information in question 1 above, Smith and Company now estimate that the cash flow in year 1 will be 150,000 instead of 200,000.

Calculate the IRR. Based on the IRR calculation should the project be accepted or rejected.

3.Cisco Inc is considering investing in two mutually exclusive projects. Projects A and project B. The cash flows for each project are shown below.

Project A

Time 0 1 2 3 4 5 6

Cash flow -250,000 100,000 125,000 75,000 55,000 25,000 10,000

Project B Time 0 1 2 3 4 5 6

Cash flow -200,000 55,000 165,000 10,000 35,000 35,000 12,000

Calculate the payback for each project. Based on the payback, which project should be accepted?Show your calculations.

4.Calculator and company are considering the purchase of a new piece of machinery. What would be the firms breakeven point in units given the data below?Show your calculations.

Fixed Costs = 50

Price = 4

Variable Cost = .90