Andrews Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $6,000,000 for the year. Lyssa Brown, staff analyst at Andrews, is preparing an analysis of the three projects under consideration by Conan Andrews, the company's owner.

	A	B	C	D
1		Project A	Project B	Project C
2	Projected cash outflow
3	Net initial investment	$3,000,000	$1,500,000	$2,000,000
4	Projected cash inflows
5	Year 1	$1,000,000	$400,000	$2,000,000
6	Year 2	1,000,000	900,000	2,000,000
7	Year 3	1,000,000	800,000	200,000
8	Year 4	1,000,000		100,000
9	Required rate of return	12%	12%	12%

Requirements

1. Because the company's cash is limited, Andrews thinks the payback method should be used 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. Brown 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.

(Here begins # 1, please answer 1 B then 2 & 3) Requirement 1. Because the company's cash is limited, Andrews thinks the payback method should be used to choose between the capital budgeting projects. a. What are the benefits and limitations of using the payback method to choose between projects? Benefits of the payback method: A. Indicates whether or not the project will earn the company's minimum required rate of return B. Utilizes the time value of money and computes each project's unique rate of return C. Easy to understand and captures uncertainty about expected cash flows in later years of a project D. All of the above

Present Value of $1
Periods	2%	4%	6%	8%	10%	12%	14%	16%	18%	20%	22%	24%	26%	28%	30%	32%	40%	Periods
Period 1	0.980	0.962	0.943	0.926	0.909	0.893	0.877	0.862	0.847	0.833	0.820	0.806	0.794	0.781	0.769	0.758	0.714	Period 1
Period 2	0.961	0.925	0.890	0.857	0.826	0.797	0.769	0.743	0.718	0.694	0.672	0.650	0.630	0.610	0.592	0.574	0.510	Period 2
Period 3	0.942	0.889	0.840	0.794	0.751	0.712	0.675	0.641	0.609	0.579	0.551	0.524	0.500	0.477	0.455	0.435	0.364	Period 3
Period 4	0.924	0.855	0.792	0.735	0.683	0.636	0.592	0.552	0.516	0.482	0.451	0.423	0.397	0.373	0.350	0.329	0.260	Period 4
Period 5	0.906	0.822	0.747	0.681	0.621	0.567	0.519	0.476	0.437	0.402	0.370	0.341	0.315	0.291	0.269	0.250	0.186	Period 5
Period 6	0.888	0.790	0.705	0.630	0.564	0.507	0.456	0.410	0.370	0.335	0.303	0.275	0.250	0.227	0.207	0.189	0.133	Period 6
Period 7	0.871	0.760	0.665	0.583	0.513	0.452	0.400	0.354	0.314	0.279	0.249	0.222	0.198	0.178	0.159	0.143	0.095	Period 7
Period 8	0.853	0.731	0.627	0.540	0.467	0.404	0.351	0.305	0.266	0.233	0.204	0.179	0.157	0.139	0.123	0.108	0.068	Period 8
Period 9	0.837	0.703	0.592	0.500	0.424	0.361	0.308	0.263	0.225	0.194	0.167	0.144	0.125	0.108	0.094	0.082	0.048	Period 9
Period 10	0.820	0.676	0.558	0.463	0.386	0.322	0.270	0.227	0.191	0.162	0.137	0.116	0.099	0.085	0.073	0.062	0.035	Period 10
Period 11	0.804	0.650	0.527	0.429	0.350	0.287	0.237	0.195	0.162	0.135	0.112	0.094	0.079	0.066	0.056	0.047	0.025	Period 11
Period 12	0.788	0.625	0.497	0.397	0.319	0.257	0.208	0.168	0.137	0.112	0.092	0.076	0.062	0.052	0.043	0.036	0.018	Period 12
Period 13	0.773	0.601	0.469	0.368	0.290	0.229	0.182	0.145	0.116	0.093	0.075	0.061	0.050	0.040	0.033	0.027	0.013	Period 13
Period 14	0.758	0.577	0.442	0.340	0.263	0.205	0.160	0.125	0.099	0.078	0.062	0.049	0.039	0.032	0.025	0.021	0.009	Period 14
Period 15	0.743	0.555	0.417	0.315	0.239	0.183	0.140	0.108	0.084	0.065	0.051	0.040	0.031	0.025	0.020	0.016	0.006	Period 15
Period 16	0.728	0.534	0.394	0.292	0.218	0.163	0.123	0.093	0.071	0.054	0.042	0.032	0.025	0.019	0.015	0.012	0.005	Period 16
Period 17	0.714	0.513	0.371	0.270	0.198	0.146	0.108	0.080	0.060	0.045	0.034	0.026	0.020	0.015	0.012	0.009	0.003	Period 17
Period 18	0.700	0.494	0.350	0.250	0.180	0.130	0.095	0.069	0.051	0.038	0.028	0.021	0.016	0.012	0.009	0.007	0.002	Period 18
Period 19	0.686	0.475	0.331	0.232	0.164	0.116	0.083	0.060	0.043	0.031	0.023	0.017	0.012	0.009	0.007	0.005	0.002	Period 19
Period 20	0.673	0.456	0.312	0.215	0.149	0.104	0.073	0.051	0.037	0.026	0.019	0.014	0.010	0.007	0.005	0.004	0.001	Period 20
Period 21	0.660	0.439	0.294	0.199	0.135	0.093	0.064	0.044	0.031	0.022	0.015	0.011	0.008	0.006	0.004	0.003	0.001	Period 21
Period 22	0.647	0.422	0.278	0.184	0.123	0.083	0.056	0.038	0.026	0.018	0.013	0.009	0.006	0.004	0.003	0.002	0.001	Period 22
Period 23	0.634	0.406	0.262	0.170	0.112	0.074	0.049	0.033	0.022	0.015	0.010	0.007	0.005	0.003	0.002	0.002	0.000	Period 23
Period 24	0.622	0.390	0.247	0.158	0.102	0.066	0.043	0.028	0.019	0.013	0.008	0.006	0.004	0.003	0.002	0.001	0.000	Period 24
Period 25	0.610	0.375	0.233	0.146	0.092	0.059	0.038	0.024	0.016	0.010	0.007	0.005	0.003	0.002	0.001	0.001	0.000	Period 25
Period 26	0.598	0.361	0.220	0.135	0.084	0.053	0.033	0.021	0.014	0.009	0.006	0.004	0.002	0.002	0.001	0.001	0.000	Period 26
Period 27	0.586	0.347	0.207	0.125	0.076	0.047	0.029	0.018	0.011	0.007	0.005	0.003	0.002	0.001	0.001	0.001	0.000	Period 27
Period 28	0.574	0.333	0.196	0.116	0.069	0.042	0.026	0.016	0.010	0.006	0.004	0.002	0.002	0.001	0.001	0.000	0.000	Period 28
Period 29	0.563	0.321	0.185	0.107	0.063	0.037	0.022	0.014	0.008	0.005	0.003	0.002	0.001	0.001	0.000	0.000	0.000	Period 29
Period 30	0.552	0.308	0.174	0.099	0.057	0.033	0.020	0.012	0.007	0.004	0.003	0.002	0.001	0.001	0.000	0.000	0.000	Period 30
Period 35	0.500	0.253	0.130	0.068	0.036	0.019	0.010	0.006	0.003	0.002	0.001	0.001	0.000	0.000	0.000	0.000	0.000	Period 35
Period 40	0.453	0.208	0.097	0.046	0.022	0.011	0.005	0.003	0.001	0.001	0.000	0.000	0.000	0.000	0.000	0.000	0.000	Period 40

Present Value of Annuity of $1.00 in Arrears*
Periods	2%	4%	6%	8%	10%	12%	14%	16%	18%	20%	22%	24%	26%	28%	30%	32%	40%	Periods
Period 1	0.980	0.962	0.943	0.926	0.909	0.893	0.877	0.862	0.847	0.833	0.820	0.806	0.794	0.781	0.769	0.758	0.714	Period 1
Period 2	1.942	1.886	1.833	1.783	1.736	1.690	1.647	1.605	1.566	1.528	1.492	1.457	1.424	1.392	1.361	1.331	1.224	Period 2
Period 3	2.884	2.775	2.673	2.577	2.487	2.402	2.322	2.246	2.174	2.106	2.042	1.981	1.923	1.868	1.816	1.766	1.589	Period 3
Period 4	3.808	3.630	3.465	3.312	3.170	3.037	2.914	2.798	2.690	2.589	2.494	2.404	2.320	2.241	2.166	2.096	1.849	Period 4
Period 5	4.713	4.452	4.212	3.993	3.791	3.605	3.433	3.274	3.127	2.991	2.864	2.745	2.635	2.532	2.436	2.345	2.035	Period 5
Period 6	5.601	5.242	4.917	4.623	4.355	4.111	3.889	3.685	3.498	3.326	3.167	3.020	2.885	2.759	2.643	2.534	2.168	Period 6
Period 7	6.472	6.002	5.582	5.206	4.868	4.564	4.288	4.039	3.812	3.605	3.416	3.242	3.083	2.937	2.802	2.677	2.263	Period 7
Period 8	7.325	6.733	6.210	5.747	5.335	4.968	4.639	4.344	4.078	3.837	3.619	3.421	3.241	3.076	2.925	2.786	2.331	Period 8
Period 9	8.162	7.435	6.802	6.247	5.759	5.328	4.946	4.607	4.303	4.031	3.786	3.566	3.366	3.184	3.019	2.868	2.379	Period 9
Period 10	8.983	8.111	7.360	6.710	6.145	5.650	5.216	4.833	4.494	4.192	3.923	3.682	3.465	3.269	3.092	2.930	2.414	Period 10
Period 11	9.787	8.760	7.887	7.139	6.495	5.938	5.453	5.029	4.656	4.327	4.035	3.776	3.543	3.335	3.147	2.978	2.438	Period 11
Period 12	10.575	9.385	8.384	7.536	6.814	6.194	5.660	5.197	4.793	4.439	4.127	3.851	3.606	3.387	3.190	3.013	2.456	Period 12
Period 13	11.348	9.986	8.853	7.904	7.103	6.424	5.842	5.342	4.910	4.533	4.203	3.912	3.656	3.427	3.223	3.040	2.469	Period 13
Period 14	12.106	10.563	9.295	8.244	7.367	6.628	6.002	5.468	5.008	4.611	4.265	3.962	3.695	3.459	3.249	3.061	2.478	Period 14
Period 15	12.849	11.118	9.712	8.559	7.606	6.811	6.142	5.575	5.092	4.675	4.315	4.001	3.726	3.483	3.268	3.076	2.484	Period 15
Period 16	13.578	11.652	10.106	8.851	7.824	6.974	6.265	5.668	5.162	4.730	4.357	4.033	3.751	3.503	3.283	3.088	2.489	Period 16
Period 17	14.292	12.166	10.477	9.122	8.022	7.120	6.373	5.749	5.222	4.775	4.391	4.059	3.771	3.518	3.295	3.097	2.492	Period 17
Period 18	14.992	12.659	10.828	9.372	8.201	7.250	6.467	5.818	5.273	4.812	4.419	4.080	3.786	3.529	3.304	3.104	2.494	Period 18
Period 19	15.678	13.134	11.158	9.604	8.365	7.366	6.550	5.877	5.316	4.843	4.442	4.097	3.799	3.539	3.311	3.109	2.496	Period 19
Period 20	16.351	13.590	11.470	9.818	8.514	7.469	6.623	5.929	5.353	4.870	4.460	4.110	3.808	3.546	3.316	3.113	2.497	Period 20
Period 21	17.011	14.029	11.764	10.017	8.649	7.562	6.687	5.973	5.384	4.891	4.476	4.121	3.816	3.551	3.320	3.116	2.498	Period 21
Period 22	17.658	14.451	12.042	10.201	8.772	7.645	6.743	6.011	5.410	4.909	4.488	4.130	3.822	3.556	3.323	3.118	2.498	Period 22
Period 23	18.292	14.857	12.303	10.371	8.883	7.718	6.792	6.044	5.432	4.925	4.499	4.137	3.827	3.559	3.325	3.120	2.499	Period 23
Period 24	18.914	15.247	12.550	10.529	8.985	7.784	6.835	6.073	5.451	4.937	4.507	4.143	3.831	3.562	3.327	3.121	2.499	Period 24
Period 25	19.523	15.622	12.783	10.675	9.077	7.843	6.873	6.097	5.467	4.948	4.514	4.147	3.834	3.564	3.329	3.122	2.499	Period 25
Period 26	20.121	15.983	13.003	10.810	9.161	7.896	6.906	6.118	5.480	4.956	4.520	4.151	3.837	3.566	3.330	3.123	2.500	Period 26
Period 27	20.707	16.330	13.211	10.935	9.237	7.943	6.935	6.136	5.492	4.964	4.524	4.154	3.839	3.567	3.331	3.123	2.500	Period 27
Period 28	21.281	16.663	13.406	11.051	9.307	7.984	6.961	6.152	5.502	4.970	4.528	4.157	3.840	3.568	3.331	3.124	2.500	Period 28
Period 29	21.844	16.984	13.591	11.158	9.370	8.022	6.983	6.166	5.510	4.975	4.531	4.159	3.841	3.569	3.332	3.124	2.500	Period 29
Period 30	22.396	17.292	13.765	11.258	9.427	8.055	7.003	6.177	5.517	4.979	4.534	4.160	3.842	3.569	3.332	3.124	2.500	Period 30
Period 35	24.999	18.665	14.498	11.655	9.644	8.176	7.070	6.215	5.539	4.992	4.541	4.164	3.845	3.571	3.333	3.125	2.500	Period 35
Period 40	27.355	19.793	15.046	11.925	9.779	8.244	7.105	6.233	5.548	4.997	4.544	4.166	3.846	3.571	3.333	3.125	2.500	Period 40

Compound Amount of $1.00 (The Future Value of $1.00)
Periods	2%	4%	6%	8%	10%	12%	14%	16%	18%	20%	22%	24%	26%	28%	30%	32%	40%	Periods
Period 1	1.020	1.040	1.060	1.080	1.100	1.120	1.140	1.160	1.180	1.200	1.220	1.240	1.260	1.280	1.300	1.320	1.400	Period 1
Period 2	1.040	1.082	1.124	1.166	1.210	1.254	1.300	1.346	1.392	1.440	1.488	1.538	1.588	1.638	1.690	1.742	1.960	Period 2
Period 3	1.061	1.125	1.191	1.260	1.331	1.405	1.482	1.561	1.643	1.728	1.816	1.907	2.000	2.097	2.197	2.300	2.744	Period 3
Period 4	1.082	1.170	1.262	1.360	1.464	1.574	1.689	1.811	1.939	2.074	2.215	2.364	2.520	2.684	2.856	3.036	3.842	Period 4
Period 5	1.104	1.217	1.338	1.469	1.611	1.762	1.925	2.100	2.288	2.488	2.703	2.932	3.176	3.436	3.713	4.007	5.378	Period 5
Period 6	1.126	1.265	1.419	1.587	1.772	1.974	2.195	2.436	2.700	2.986	3.297	3.635	4.002	4.398	4.827	5.290	7.530	Period 6
Period 7	1.149	1.316	1.504	1.714	1.949	2.211	2.502	2.826	3.185	3.583	4.023	4.508	5.042	5.629	6.275	6.983	10.541	Period 7
Period 8	1.172	1.369	1.594	1.851	2.144	2.476	2.853	3.278	3.759	4.300	4.908	5.590	6.353	7.206	8.157	9.217	14.758	Period 8
Period 9	1.195	1.423	1.689	1.999	2.358	2.773	3.252	3.803	4.435	5.160	5.987	6.931	8.005	9.223	10.604	12.166	20.661	Period 9
Period 10	1.219	1.480	1.791	2.159	2.594	3.106	3.707	4.411	5.234	6.192	7.305	8.594	10.086	11.806	13.786	16.060	28.925	Period 10
Period 11	1.243	1.539	1.898	2.332	2.853	3.479	4.226	5.117	6.176	7.430	8.912	10.657	12.708	15.112	17.922	21.199	40.496	Period 11
Period 12	1.268	1.601	2.012	2.518	3.138	3.896	4.818	5.936	7.288	8.916	10.872	13.215	16.012	19.343	23.298	27.983	56.694	Period 12
Period 13	1.294	1.665	2.133	2.720	3.452	4.363	5.492	6.886	8.599	10.699	13.264	16.386	20.175	24.759	30.288	36.937	79.371	Period 13
Period 14	1.319	1.732	2.261	2.937	3.797	4.887	6.261	7.988	10.147	12.839	16.182	20.319	25.421	31.691	39.374	48.757	111.120	Period 14
Period 15	1.346	1.801	2.397	3.172	4.177	5.474	7.138	9.266	11.974	15.407	19.742	25.196	32.030	40.565	51.186	64.359	155.568	Period 15
Period 16	1.373	1.873	2.540	3.426	4.595	6.130	8.137	10.748	14.129	18.488	24.086	31.243	40.358	51.923	66.542	84.954	217.795	Period 16
Period 17	1.400	1.948	2.693	3.700	5.054	6.866	9.276	12.468	16.672	22.186	29.384	38.741	50.851	66.461	86.504	112.139	304.913	Period 17
Period 18	1.428	2.026	2.854	3.996	5.560	7.690	10.575	14.463	19.673	26.623	35.849	48.039	64.072	85.071	112.455	148.024	426.879	Period 18
Period 19	1.457	2.107	3.026	4.316	6.116	8.613	12.056	16.777	23.214	31.948	43.736	59.568	80.731	108.890	146.192	195.391	597.630	Period 19
Period 20	1.486	2.191	3.207	4.661	6.727	9.646	13.743	19.461	27.393	38.338	53.358	73.864	101.721	139.380	190.050	257.916	836.683	Period 20
Period 21	1.516	2.279	3.400	5.034	7.400	10.804	15.668	22.574	32.324	46.005	65.096	91.592	128.169	178.406	247.065	340.449	1171.356	Period 21
Period 22	1.546	2.370	3.604	5.437	8.140	12.100	17.861	26.186	38.142	55.206	79.418	113.574	161.492	228.360	321.184	449.393	1639.898	Period 22
Period 23	1.577	2.465	3.820	5.871	8.954	13.552	20.362	30.376	45.008	66.247	96.889	140.831	203.480	292.300	417.539	593.199	2295.857	Period 23
Period 24	1.608	2.563	4.049	6.341	9.850	15.179	23.212	35.236	53.109	79.497	118.205	174.631	256.385	374.144	542.801	783.023	3214.200	Period 24
Period 25	1.641	2.666	4.292	6.848	10.835	17.000	26.462	40.874	62.669	95.396	144.210	216.542	323.045	478.905	705.641	1033.590	4499.880	Period 25
Period 26	1.673	2.772	4.549	7.396	11.918	19.040	30.167	47.414	73.949	114.475	175.936	268.512	407.037	612.998	917.333	1364.339	6299.831	Period 26
Period 27	1.707	2.883	4.822	7.988	13.110	21.325	34.390	55.000	87.260	137.371	214.642	332.955	512.867	784.638	1192.533	1800.927	8819.764	Period 27
Period 28	1.741	2.999	5.112	8.627	14.421	23.884	39.204	63.800	102.967	164.845	261.864	412.864	646.212	1004.336	1550.293	2377.224	12347.670	Period 28
Period 29	1.776	3.119	5.418	9.317	15.863	26.750	44.693	74.009	121.501	197.814	319.474	511.952	814.228	1285.550	2015.381	3137.935	17286.737	Period 29
Period 30	1.811	3.243	5.743	10.063	17.449	29.960	50.950	85.850	143.371	237.376	389.758	634.820	1025.927	1645.505	2619.996	4142.075	24201.432	Period 30
Period 35	2.000	3.946	7.686	14.785	28.102	52.800	98.100	180.314	327.997	590.668	1053.402	1861.054	3258.135	5653.911	9727.860	16599.217	130161.112	Period 35
Period 40	2.208	4.801	10.286	21.725	45.259	93.051	188.884	378.721	750.378	1469.772	2847.038	5455.913	10347. There are 3 Steps involved in it Step: 1 Get Instant Access with AI-Powered Solutions See step-by-step solutions with expert insights and AI powered tools for academic success Step: 2 Step: 3 Ace Your Homework with AI Get the answers you need in no time with our AI-driven, step-by-step assistance Get Started Recommended Textbook for Cost Accounting A Managerial Emphasis Authors: Charles T. Horngren, Srikant M.Dater, George Foster, Madhav 13th Edition 978-0136126638 More Books Students also viewed these Accounting questions Question =+25. Good model? In justifying his choice of a model, a consultant says I know this is the correct model because R2 = 99.4%. Answered: 1 week ago Question ★★★★★ Go to the books companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc. (a) What employee stock-option compensation... Answered: 1 week ago Question ★★★★★ Mecurton anvesurent and Invesuent vecisions Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new product-a weather radio that would put out a warning if the county... Answered: 1 week ago Question ★★★★★ 1. A rope is attached to two buildings and supports a 500 - lb sign (See Fig below). Find the tensions in the two ropes T1 and T2. (Hint: Draw the force diagram of the forces acting at the point... Answered: 1 week ago Question ★★★★★ In particular What did Dr. Balanoff and other researchers discover about the size of the dinosaur cerebrum in non-bird dinosaurs closely related to birds? Answered: 1 week ago Question ★★★★★ 1. Consider the output of a paper mill: the product appears at the end of a web and is rolled onto a spool called a reel. Every reel is examined for the number of blemishes, which are imperfections.... Answered: 1 week ago Question ★★★★★ provide the step-by-step calculations for this question: Rod BD is made of steel ( E = 29 10 6 psi) and is used to brace the axially compressed member ABC . The maximum force that can be developed in... Answered: 1 week ago Question ★★★★★ 1. What was the need of Zurich airport privatization? + recommendation( words of 500 to 600)* references required+ p lagiarism applied* Answered: 1 week ago Question ★★★★★ Z satellite's body is rotating with an angular velocity about z-axis the solar panels rotate with by angle about y-axis calculate the angular momentum of the satellite Answered: 1 week ago Previous Question Next Question Study smarter with the SolutionInn App Services Sitemap Fun Definitions Become Tutor Study Help Categories Recent Questions Expert Questions Company Info Security Copyrights Privacy Policy Terms & Conditions SolutionInn Fee Scholarship Get In Touch About Us Contact Us Career Jobs FAQ Campus Ambassador Secure Payment Download Our App © 2024 SolutionInn. All Rights Reserved