Miltons Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $12,000,000 for the year. Lauren Benson, staff analyst at Miltons, is preparing an analysis of the three projects under consideration by Cullin Miltons, the company's owner.

b. Calculate the payback period for each of the three projects. Ignore income taxes. (Round your answers to two decimal places.)

Project A		years
Project B		years
Project C		years

Requirements 1. a. Because the company's cash is limited, Miltons thinks the payback method should be used to choose between the capital budgeting projects. 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 Miltons choose? 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. Which projects, if any, would you recommend funding? Briefly explain why. 2. 3. 3. Data Table A B D 1 Project A Project B Project C 2 Projected cash outflow 3 Net initial investment $ 6,000,000 $ 4,000,000 $ 8,000,000 4 Projected cash inflows 5 Year 1 $ 2,050,000 $ 1,100,000 $ 4,700,000 6 Year 2 2,050,000 2,300,000 4,700,000 7 Year 3 2,050,000 700,000 50,000 8 Year 4 2,050,000 25,000 9 Required rate of return 8% 8% 8%