Lulus Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $$15,000,000$ for the year. Lenora Bryce, staff analyst at Lulus, is

preparing an analysis of the three projects under consideration by Calvin Lulus, 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.

Requirement $1.$ Because the company's cash is limited$,$ Lulus 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

Requirements

Because the company's cash is limited$,$ Lulus 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 Lulus choose?

Bryce thinks that projects should be selected based on their NPVs$.$ Assume all cash flows occur at the end of the year

Data table