1.

The following are the cash flows of two projects:

Year Project A Project B

0 $(250) $(250)

1 130 150

2 130 150

3 130 150

4 130 150

a.If the opportunity cost of capital is 10%, calculate the NPV for both projects.

Project NPV

A

B

2.

The following are the cash flows of two projects:

Year Project A Project B

0 $(270) $(270)

1 150 170

2 150 170

3 150 170

4 150 170

a.Calculate the NPV for both projects if the discount rate is 12%.

Project NPV

A

B

b.Suppose that you can choose only one of these projects. Which would you choose?

• Project A
• Project B
• Neither

3.

The following are the cash flows of two projects:

Year Project A Project B

0 $(240) $(240)

1 120 140

2 120 140

3 120 140

4 120 140

If the opportunity cost of capital is 12%, what is the profitability index for each project?

Project Profitability Index

A

B

4.

The following are the cash flows of two projects:

Year Project A Project B

0 $(320) $(320)

1 150 220

2 150 220

3 150 220

4 150 220

What is the payback period of each project?

Project Payback Period yrs

A

B

5.

A project that costs $5,050 to install will provide annual cash flows of $1,700 for each of the next 6 years.

a.What is NPV if the discount rate is 15%?

NPV:

b.How high can the discount rate be before you would reject the project?

Discount Rate: %