Andrews Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Linda Bart, staff analyst at Andrews, is preparing an analysis of the three projects under consideration by Chester Andrews, the company's owner. E (Click the icon to view the data for the three projects.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. 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: O A. Utilizes the time value of money and computes each project's unique rate of return B. Easy to understand and captures uncertainty about expected cash flows in later years of a project O C. Indicates whether or not the project will earn the company's minimum required rate of return O D. All of the above Limitations of the payback method: O A. Cannot be used when management's required rate of return varies from one period to the next. O B. Cannot be used for projects with unequal periodic cash flows C. Fails to incorporate the time value of money and does not consider a project's cash flows after the payback period O D. All of the above Enter any number in the edit fields and then click Check Answer. A. Cannot be used when management's required rate of return varies from one period to the next. B. Cannot be used for projects with unequal periodic cash flows C. Fails to incorporate the time value of money and does not consider a project's cash flows after the payback period OD. All of the above b. Calculate the payback period for each of the three projects. Ignore income taxes. (Round your answers to two decimal places.) Project A Project B Project C 2.5 years 2.6 years 1.76 years Using the payback method, which project(s) should Andrews choose? Project C Requirement 2. Calculate the NPV for each project. Ignore income taxes. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for negative net present values.) The NPV of Project Ais Enter any number in the edit fields and then click Check Answer. i . Data Table A B D 1 Project A Project B Project C $ 3,000,000 $ 2,100,000 $ 3,000,000 2 Projected cash outflow 3 Net initial investment 4 Projected cash inflows 5 Year 1 6 Year 2 7 Year 3 $ 1,200,000 $ 1,200,000 $ 1,700,000 1,200,000 600,000 1,700,000 1,200,000 500,000 200,000 1,200,000 100,000 12% 12% 12% 8 Year 4 9 Required rate of return Print Done then click Check Answer. ements 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. Bart 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. Print Done