Cranes 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. Laura Benson, staff analyst at Cranes, is preparing an analysis of the three projects under consideration by Caden Cranes, the company's owner. (Click the icon to view the data for the three projects.) Present Value of $1 table Read the requirements. B. Cannot be used tor projects with unequal periodic cash nlows C. Fails to incorporate the time value of money and does not consider a project's cash flows after the payback period D. 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.) \begin{tabular}{l|l} \hline Project A & years \\ \hline Project B & years \\ \hline Project C & years \end{tabular} Data table Requirements 1. Because the company's cash is limited, Cranes 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 Cranes choose? 2. Benson 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. Cranes 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. Lau Benson, staff analyst at Cranes, is preparing an analysis of the three projects under consideration by Present Value of \$1 table Present Value of Annuity of $1 table Read the requirements. Benenits of the payback method: A. Uilizes the time value of money and computes each project's unique rate of retum 8. Indicates whethe tor not the project will eam the company's minimum required rate of retum C. Easy to understand and captures uncertainty about expected cash flows in later years of a project D. All of the above Limitations of the payback method: Data table 1. Because the company's cash is limited, Cranes 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 Cranes choose? 2. Benson 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. B. Cannot be used tor projects with unequal periodic cash tlows C. Fails to incorporate the time value of money and does not consider a project's cash flows after the payback period D. 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.) ProjectProjectByearsyears Cranes 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. Laura Benson, staff analyst at Cranes, is preparing an analysis of the three projects under consideration by Caden Cranes, the company's owner. (Click the icon to view the data for the three projects.) Read the requirements. 13. Cannot be used tor projects with unequal periodic cash tiows C. Fails to incorporate the time value of money and does not consider a project's cash flows after the payback period D. All of the above Data table 1. Because the company's cash is limited, Cranes 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 Cranes choose? 2. Benson 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
