3.) Calculating Payback-

Global Toys, Inc. imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should it accept either of them? Show Calculations.

Year Cash Flow (A) Cash Flow(B)

0 -$55,000 -$95,000

1 19,000 18,000

2 27,000 26,000

3 24,000 28,000

4 9,000 260,000

7.) Calculating NPV and IRR-

A project that provides annual cash flows of $1,930 for eight years cost $7,700 today. Is this a good project if the required return is 8 percent? What if its 24 percent? At what discount rate would you be indifferent between accepting the project and rejecting it? Show in excel formula.

10.) NPV versus IRR-

Romboski, LLC, has identified the following two mutually exclusive projects: Show Calculations.

Year Cash Flow (A) Cash Flow (B)

0 -$65,000 -$65,000

1 34,000 19,000

2 27,000 25,000

3 21,000 29,000

4 17,000 34,000

• What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct?
• If the required return is 11 percent, what is the NPV for each of these projects? Which project will you choose if you apply the NPV decision rule?
• Over what range of discount rates would you choose Project A? Project B? At what discount rate would you be indifferent between these two projects? Explain.

14.) Problems and Profitability Index

The Matterhorn Corporation is trying to choose between the following two mutually exclusive design projects: Show Calculations.

Year Cash Flow (I) Cash Flow(II)

0 -$65,000 -$24,000

1 24,000 8,000

2 29,000 14,500

3 36,000 12,800