Light and Drift Limited is an international producer of wheels The company is based on the island of Rubber and Speed in the Artic Ocean The company is approaching the end of its financial year, and the board of directors are seeking to decide on the capital budget for the forthcoming year, and the capital expenditure items the company may invest into The chief financial officer (CFO) has presented the board with the following list of four major capital expenditure projects for consideration with the initial outlay and projected annual after tax cash flows for each project Project B Project V Project R Project E Initial Outlay $66,000 00 $54,000 00 $42,000 00 $85,000 00 Life of Project 3 Years 4 Years 3 Years 5 Years Annual After Tax Cash Flow Year 1 $28,000 00 $16,000 00 $29,000 00 $31,000 00 Year 2 $38,000 00 $18,000 00 $19,000 00 $21,000 00 Year 3 $16,000 00 $35,000 00 $12,000 00 $29,000 00 Year 4 $15,000 00 $15,000 00 Year 5 $30,000 00 The cost of capital is 10 50 Required (1) Calculate the discounted payback period for Project V The company requires a minimum accounting payback period of 3 05 years Would Project V be accepted (ignore all other projects) (2) Calculate the profitability index value for Project B Would Project B be accepted (ignore all other projects) (3) Assume that the company has a capital budget of $118,000 for the forthcoming year Also, assume that the company can only select from Project B and Project R These projects are assumed to be independent Calculate the NPV of each and based on that project (or projects) should the company select Justify your answer (4) Assume company wish to select between Project R and Project E Both projects are mutually exclusive Based on appropriate calculation techniques, which project would be selected Show all calculations

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Light and Drift Limited is an international producer of wheels. The company is based on the island of Rubber and Speed in the Artic Ocean.

The company is approaching the end of its financial year, and the board of directors are seeking to decide on the capital budget for the forthcoming year, and the capital expenditure items the company may invest into.

The chief financial officer (CFO) has presented the board with the following list of four major capital expenditure projects for consideration with the initial outlay and projected annual after-tax cash flows for each project.

	Project B	Project V	Project R	Project E
Initial Outlay	$66,000.00	$54,000.00	$42,000.00	$85,000.00
Life of Project	3 Years	4 Years	3 Years	5 Years
Annual After-Tax Cash Flow
Year 1	$28,000.00	$16,000.00	$29,000.00	$31,000.00
Year 2	$38,000.00	$18,000.00	$19,000.00	$21,000.00
Year 3	$16,000.00	$35,000.00	$12,000.00	$29,000.00
Year 4		$15,000.00		$15,000.00
Year 5				$30,000.00

The cost of capital is 10.50%.

Required:

(1) Calculate the discounted payback period for Project V. The company requires a minimum accounting payback period of 3.05 years. Would Project V be accepted (ignore all other projects)?

(2) Calculate the profitability index value for Project B. Would Project B be accepted (ignore all other projects)?

(3) Assume that the company has a capital budget of $118,000 for the forthcoming year. Also, assume that the company can only select from Project B and Project R. These projects are assumed to be independent. Calculate the NPV of each and based on that project (or projects) should the company select. Justify your answer.

(4) Assume company wish to select between Project R and Project E. Both projects are mutually exclusive. Based on appropriate calculation techniques, which project would be selected. Show all calculations.