Andrews Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $12,000,000 for the year. Lydia Bobo, staff analyst at Andrews, is preparing an analysis of the three projects under consideration by Calvin Andrews, the company's owner. (Click the icon to view the data for the three projects.) Present Value of Annuity of $1 table Future Value of Annuity of $1 table Read the requirements. Requirements 1. Because the company's cash is limited, Andrews thinks the payback method should be ustd to choose between the capital budgeting projects. a. What are the benefits and limitations of using the payback method to choose between projects? b. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Andrews choose? 2. Bobo 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. 3. Which projects, if any, would you recommend funding? Briefly explain why. \begin{tabular}{|l|l|r|r|r|} \hline & \multicolumn{1}{|c|}{ A } & \multicolumn{1}{c|}{ B } & \multicolumn{1}{c|}{ C } & \multicolumn{1}{c|}{ D } \\ \hline 1 & & Project A & Project B & Project C \\ \hline 2 & Projected cash outflow & & & \\ \hline 3 & Net initial investment & $6,000,000 & $4,000,000 & $8,000,000 \\ \hline 4 & Projected cash inflows & & & \\ \hline 5 & Year 1 & $2,050,000 & $1,100,000 & $4,700,000 \\ \hline 6 & Year 2 & 2,050,000 & 2,300,000 & 4,700,000 \\ \hline 7 & Year 3 & 2,050,000 & 700,000 & 50,000 \\ \hline 8 & Year 4 & 2,050,000 & & 25,000 \\ \hline 9 & Required rate of return & 10% & 10% & 10% \\ \hline \end{tabular} Done Using the payback method, which project(s) should Andrews choose? Requirement 2. Calculate the NPV for each project. Ignore income taxes. (Round your answers to the nearest wh The NPV of Project A is The NPV of Project B is Andrews Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $12,000,000 for the year. Lydia Bobo, staff analyst at Andrews, is preparing an analysis of the three projects under consideration by Calvin Andrews, the company's owner. (Click the icon to view the data for the three projects.) Present Value of Annuity of $1 table Future Value of Annuity of $1 table Read the requirements. Requirements 1. Because the company's cash is limited, Andrews thinks the payback method should be ustd to choose between the capital budgeting projects. a. What are the benefits and limitations of using the payback method to choose between projects? b. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Andrews choose? 2. Bobo 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. 3. Which projects, if any, would you recommend funding? Briefly explain why. \begin{tabular}{|l|l|r|r|r|} \hline & \multicolumn{1}{|c|}{ A } & \multicolumn{1}{c|}{ B } & \multicolumn{1}{c|}{ C } & \multicolumn{1}{c|}{ D } \\ \hline 1 & & Project A & Project B & Project C \\ \hline 2 & Projected cash outflow & & & \\ \hline 3 & Net initial investment & $6,000,000 & $4,000,000 & $8,000,000 \\ \hline 4 & Projected cash inflows & & & \\ \hline 5 & Year 1 & $2,050,000 & $1,100,000 & $4,700,000 \\ \hline 6 & Year 2 & 2,050,000 & 2,300,000 & 4,700,000 \\ \hline 7 & Year 3 & 2,050,000 & 700,000 & 50,000 \\ \hline 8 & Year 4 & 2,050,000 & & 25,000 \\ \hline 9 & Required rate of return & 10% & 10% & 10% \\ \hline \end{tabular} Done Using the payback method, which project(s) should Andrews choose? Requirement 2. Calculate the NPV for each project. Ignore income taxes. (Round your answers to the nearest wh The NPV of Project A is The NPV of Project B is
