Because the company's cash is limited,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 shouldchoose?

2.

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.

Miltons 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. Larissa Brown, staff analyst at Miltons, is preparing a hree projects under consideration by Chris Miltons, the company's owner. (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. i X D. All of the above Data Table i Requirements - X A B C D 1 . 1 Project B Project C Because the company's cash is limited, Miltons thinks the payback method should be used to choose between the Project A capital budgeting projects. 2 Projected cash outflow a. What are the benefits and limitations of using the payback method to choose between projects? 3 Net initial investment $ 3,000,000 $ 2,100,000 $ 3,000,000 b. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Miltons choose? 4 Projected cash inflows 2. Brown thinks that projects should be selected based on their NPVs. Assume all cash flows occur at the end of the year Year 1 $ 1,200,000 $ 1,200,000 $ 1,700,000 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. 6 Year 2 1,200,000 600,000 1,700,000 7 |Year 3 1,200,000 500,000 200,000 8 Print Done Year 4 1,200,000 100,000 Required rate of return 8% 3% 8% Requirement 2. Calculate the NPV for each project. Ignore income taxes. (Round your answers to the nearest whole dollar. Use parenther The NPV of Project A is $ 974,400 Print Done The NPV of Project B is