(a)

(b&c)

Miltons Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $7,000,000 for the year. Lyssa Bryce, staff analyst at Miltons, is preparing an analysis of the three projects under consideration by Chris Miltons, the company's owner. Reference Project A Project B Project C Projected cash outflow Net initial investment $ 4,200,000 $ 2,400,000 $ 5,000,000 Projected cash inflows Year 1 Year 2 $ 2,000,000 $ 2,000,000 2,000,000 2,000,000 700,000 $ 2,600,000 1,200,000 2,600,000 600,000 200,000 100,000 Year 3 Year 4 Required rate of return 6% 6% 6% Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Miltons choose? Bryce thinks that projects should be selected based on their NPVs. Assume all cash flows occur at the end of the year except for initial investment amounts. Calculate the NPV for each project. Ignore income taxes. Which projects, if any, would you recommend funding? Briefly explain why