All parts are independent of all other parts. Assume that all cash flows are

after-tax cash flows.

1. Randy Willis is considering investing in one of the following two

projects. Either project will require an investment of $10,000. The expected

cash flows for the two projects follow. Assume that each project is independent.

What is the payback period for each project, to two decimal places?

If rapid payback is important, which project should be chosen?

Which would you choose?

YR PROJ A PROJ B

1 3,000 3,000

2 4,000 4,000

3 5,000 6,000

4 10,000 3,000

5 10,000 3,000

2. David Booth is interested in investing in some tools and equipment so

that he can do independent dry walling. The cost of the tools and

equipment is $20,000. He estimates that the return from owning his own

equipment will be $6,000 per year. The tools and equipment will last six

years. Assuming a required rate of return of 8 percent, calculate the NPV.