NPV for projects A, B, & C

Romanos 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 Bentley, staff analyst at Romanos, is preparing an analysis of the three projects under consideration by Curtis Romanos, 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, Romanos 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. Easy to understand and captures uncertainty about expected cash flows in later years of a project c. Utilizes the time value of money and computes each project's unique rate of return D. All of the above Limitations of the payback method: A. Fails to incorporate the time value of money and does not consider a project's cash flows after the payback period B. Cannot be used when management's required rate of return varies from one period to the next. b. Calculate the payback period for each of the three projects. Ignore income taxes. (Round your answers to two decimal places.) Project A Project B Project C 2.5 years 2.6 years 1.76 years Using the payback method, which project(s) should Romanos choose? Project C Requirement 2. Calculate the NPV for each project. Ignore income taxes. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for negative net present values.) The NPV of Project A is Romanos 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 Bentley, staff analyst at Romanos, is preparing an analysis of the three projects under consideration by Curtis Romanos, 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, Romanos 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. Easy to understand and captures uncertainty about expected cash flows in later years of a project c. Utilizes the time value of money and computes each project's unique rate of return D. All of the above Limitations of the payback method: A. Fails to incorporate the time value of money and does not consider a project's cash flows after the payback period B. Cannot be used when management's required rate of return varies from one period to the next. b. Calculate the payback period for each of the three projects. Ignore income taxes. (Round your answers to two decimal places.) Project A Project B Project C 2.5 years 2.6 years 1.76 years Using the payback method, which project(s) should Romanos choose? Project C Requirement 2. Calculate the NPV for each project. Ignore income taxes. (Round your answers to the nearest whole dollar. Use parentheses or a minus sign for negative net present values.) The NPV of Project A is