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1. You are evaluating a capital budgeting project that costs $25,000 and is expected to generate cash flows equal to $10,000 per year for four
1. You are evaluating a capital budgeting project that costs $25,000 and is expected to generate cash flows equal to $10,000 per year for four years. The required rate of retum is 10 percent. (a) Compute the project's net present value. (b) Should the project be purchased? 2. Compute the payback period for a project that costs $70,000. The project is expected to generate $16,000 per year for six years. 3. ABC Ins. has the following mutually exclusive projects. (a) Suppose the company's payback period cutoff is two years. Compute the payback. period for each project. Which of these two projects should be chosen? (b) Suppose the company uses the NPV rule to rank these two projects. Compute the net present value for each project. Which project should be chosen if the discount rate is 12 percent
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