1 Buy Coastal, Inc , imposes a payback cutoff of three years for its international investment projects Year Cash Flow (A) Cash Flow (B) 0 $ 57,000 $ 67,000 1 21,500 13,500 2 25,000 16,500 3 19,500 23,000 4 6,500 227,000 What is the payback period for both projects (Round your answers to 2 decimal places (e g , 32 16)) Payback period Project A years Project B years 2 An investment project costs $10,000 and has annual cash flows of $2,850 for six years What is the discounted payback period if the discount rate is zero percent (Enter 0 if the project never pays back Round your answer to 2 decimal places (e g , 32 16)) Discounted payback period years What is the discounted payback period if the discount rate is 5 percent (Enter 0 if the project never pays back Round your answer to 2 decimal places (e g , 32 16)) Discounted payback period years What is the discounted payback period if the discount rate is 19 percent (Enter 0 if the project never pays back Round your answer to 2 decimal places (e g , 32 16) Discounted payback period years 3 Youre trying to determine whether to expand your business by building a new manufacturing plant The plant has an installation cost of $12 4 million, which will be depreciated straight line to zero over its four year life If the plant has projected net income of $1,894,300, $1,947,600, $1,916,000, and $1,369,500 over these four years, what is the projects average accounting return (AAR) (Round your answer to 2 decimal places (e g , 32 16)) Average accounting return 4 A project that provides annual cash flows of $17,400 for ten years costs $80,000 today What is the NPV for the project if the required return is 9 percent (Round your answer to 2 decimal places (e g , 32 16)) NPV $ At a required return of 9 percent, should the firm accept this project Accept Reject What is the NPV for the project if the required return is 21 percent ( Negative amount should be indicated by a minus sign Round your answer to 2 decimal places (e g , 32 16)) NPV $ At a required return of 21 percent, should the firm accept this project Accept Reject At what discount rate would you be indifferent between accepting the project and rejecting it (Round your answer to 2 decimal places (e g , 32 16)) Discount rate 5 What is the IRR of the following set of cash flows (Round your answer to 2 decimal places (e g , 32 16)) Year Cash Flow 0 $ 16,500 1 7,200 2 8,500 3 7,000 IRR 6 Garage, Inc , has identified the following two mutually exclusive projects Year Cash Flow (A) Cash Flow (B) 0 $ 29,700 $ 29,700 1 15,100 4,650 2 13,000 10,150 3 9,550 15,900 4 5,450 17,500 a 1 What is the IRR for each of these projects (Do not round intermediate calculations and round your final answers to 2 decimal places (e g , 32 16)) IRR Project A Project B a 2 Using the IRR decision rule, which project should the company accept Project A Project B a 3 Is this decision necessarily correct Yes No b 1 If the required return is 12 percent, what is the NPV for each of these projects (Do not round intermediate calculations and round your final answers to 2 decimal places (e g , 32 16)) NPV Project A $ Project B $ b 2 Which project will the company choose if it applies the NPV decision rule Project A Project B c At what discount rate would the company be indifferent between these two projects (Do not round intermediate calculations and round your final answer to 2 decimal places (e g , 32 16) Discount rate 7 Consider the following two mutually exclusive projects Year Cash Flow (A) Cash Flow (B) 0 $ 345,000 $ 48,500 1 50,000 24,500 2 70,000 22,500 3 70,000 20,000 4 445,000 15,100 Whichever project you choose, if any, you require a 14 percent return on your investment a 1 What is the payback period for each project (Round your answers to 2 decimal places (e g , 32 16)) Payback period Project A years Project B years a 2 If you apply the payback criterion, which investment will you choose Project A Project B b 1 What is the discounted payback period for each project (Do not round intermediate calculations and round your final answers to 2 decimal places (e g , 32 16)) Discounted payback period Project A years Project B years b 2 If you apply the discounted payback criterion, which investment will you choose Project A Project B c 1 What is the NPV for each project (Do not round intermediate calculations and round your final answers to 2 decimal places (e g , 32 16)) NPV Project A $ Project B $ c 2 If you apply the NPV criterion, which investment will you choose Project A Project B d 1 What is the IRR for each project (Round your answers to 2 decimal places (e g , 32 16)) IRR Project A Project B d 2 If you apply the IRR criterion, which investment will you choose Project A Project B e 1 What is the profitability index for each project (Do not round intermediate calculations and round your final answers to 3 decimal places (e g , 32 161)) Profitability index Project A Project B e 2 If you apply the profitability index criterion, which investment will you choose Project A Project B f Based on your answers in (a) through (e), which project will you finally choose Project B Project A 8 An investment under consideration has a payback of eight years and a cost of $865,900 Assume the cash flows are conventional If the required return is 10 percent, what is the worst case NPV (Negative amount should be indicated by a minus sign Round your answer to 2 decimal places (e g , 32 16)) Worst case NPV $ 9 Year Cash Flow 0 $ 3,024 1 17,172 2 36,420 3 34,200 4 12,000 This problem is useful for testing the ability of financial calculators and computer software Consider the above cash flows The IRRs, from smallest to largest, are percent, percent, percent, and percent (Hint search between 20 percent and 70 percent ) (Round your answers to 2 decimal places (e g , 32 16))

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1.Buy Coastal, Inc., imposes a payback cutoff of three years for its international investment projects. Year Cash Flow (A) Cash Flow (B) 0 $ 57,000

1.Buy Coastal, Inc., imposes a payback cutoff of three years for its international investment projects.

Year	Cash Flow (A)		Cash Flow (B)
0	$	57,000	$	67,000
1		21,500		13,500
2		25,000		16,500
3		19,500		23,000
4		6,500		227,000

What is the payback period for both projects? (Round your answers to 2 decimal places. (e.g., 32.16))

	Payback period
Project A	years
Project B	years

An investment project costs $10,000 and has annual cash flows of $2,850 for six years.

What is the discounted payback period if the discount rate is zero percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16))

Discounted payback period

years

What is the discounted payback period if the discount rate is 5 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16))

Discounted payback period

years

What is the discounted payback period if the discount rate is 19 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16)

Discounted payback period

years

Youre trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12.4 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,894,300, $1,947,600, $1,916,000, and $1,369,500 over these four years, what is the projects average accounting return (AAR)? (Round your answer to 2 decimal places. (e.g., 32.16))

Average accounting return

A project that provides annual cash flows of $17,400 for ten years costs $80,000 today.

What is the NPV for the project if the required return is 9 percent? (Round your answer to 2 decimal places. (e.g., 32.16))

NPV

At a required return of 9 percent, should the firm accept this project?

	Accept
	Reject

What is the NPV for the project if the required return is 21 percent? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))

NPV

At a required return of 21 percent, should the firm accept this project?

	Accept
	Reject

At what discount rate would you be indifferent between accepting the project and rejecting it? (Round your answer to 2 decimal places. (e.g., 32.16))

Discount rate

What is the IRR of the following set of cash flows? (Round your answer to 2 decimal places. (e.g., 32.16))

Year	Cash Flow
0	$	16,500
1		7,200
2		8,500
3		7,000

IRR

6. Garage, Inc., has identified the following two mutually exclusive projects:

Year	Cash Flow (A)		Cash Flow (B)
0	$	29,700	$	29,700
1		15,100		4,650
2		13,000		10,150
3		9,550		15,900
4		5,450		17,500

a-1

What is the IRR for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

	IRR
Project A	%
Project B	%

a-2

Using the IRR decision rule, which project should the company accept?

	Project A
	Project B

a-3

Is this decision necessarily correct?

	Yes
	No

b-1

If the required return is 12 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

	NPV
Project A	$
Project B	$

b-2

Which project will the company choose if it applies the NPV decision rule?

	Project A
	Project B

c.	At what discount rate would the company be indifferent between these two projects? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)

Discount rate

7.Consider the following two mutually exclusive projects:

Year	Cash Flow (A)		Cash Flow (B)
0	$	345,000	$	48,500
1		50,000		24,500
2		70,000		22,500
3		70,000		20,000
4		445,000		15,100

Whichever project you choose, if any, you require a 14 percent return on your investment.

a-1

What is the payback period for each project? (Round your answers to 2 decimal places. (e.g., 32.16))

	Payback period
Project A	years
Project B	years

a-2

If you apply the payback criterion, which investment will you choose?

	Project A
	Project B

b-1

What is the discounted payback period for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

	Discounted payback period
Project A	years
Project B	years

b-2

If you apply the discounted payback criterion, which investment will you choose?

	Project A
	Project B

c-1

What is the NPV for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

	NPV
Project A	$
Project B	$

c-2

If you apply the NPV criterion, which investment will you choose?

	Project A
	Project B

d-1

What is the IRR for each project? (Round your answers to 2 decimal places. (e.g., 32.16))

	IRR
Project A	%
Project B	%

d-2

If you apply the IRR criterion, which investment will you choose?

	Project A
	Project B

e-1

What is the profitability index for each project? (Do not round intermediate calculations and round your final answers to 3 decimal places. (e.g., 32.161))

	Profitability index
Project A
Project B

e-2

If you apply the profitability index criterion, which investment will you choose?

	Project A
	Project B

Based on your answers in (a) through (e), which project will you finally choose?

Project B

Project A

An investment under consideration has a payback of eight years and a cost of $865,900. Assume the cash flows are conventional.

If the required return is 10 percent, what is the worst-case NPV? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))

Worst-case NPV

Year	Cash Flow
0	$	3,024
1		17,172
2		36,420
3		34,200
4		12,000

This problem is useful for testing the ability of financial calculators and computer software. Consider the above cash flows. The IRRs, from smallest to largest, are percent, percent, percent, and percent. (Hint: search between 20 percent and 70 percent.) (Round your answers to 2 decimal places. (e.g., 32.16))