Alexander Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $18000, and that for the pulley system is $22000. The firm's cost of capital is 14%. After-tax cash flows, including depreciation, are as follows:

Year

Truck

Pulley

1

(truck) $5100

(pulley)$7500

2

5100

7500

3

5100

7500

4

5100

7500

5

5100

7500

What are the correct accept / reject decisions for the projects.

Select one:

a. Truck: Accept, Pulley: Accept

b. Truck: Reject, Pulley: Reject

c. Truck: Accept, Pulley: Reject

d. Truck: Reject, Pulley: Accept

Which of the following statements is CORRECT?

Select one:

a. The regular payback is useful as an indicator of a project's liquidity because it gives managers an idea of how long it will take to recover the funds invested in a project.

b. The regular payback method was, years ago, widely used, but virtually no companies even calculate the payback today.

c. The regular payback method recognizes all cash flows over a project's life.

d. The regular payback does not consider cash flows beyond the payback year, but the discounted payback overcomes this defect.

e. The discounted payback method recognizes all cash flows over a project's life, and it also adjusts these cash flows to account for the time value of money.

Which of the following statements is CORRECT?

Select one:

a. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital.

b. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life.

c. An NPV profile graph shows how a project's payback varies as the cost of capital changes.

d. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases.

e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.