Question 1 (evaluating investment projects) (Chapter 11) Generic Motors Corporation is planning to invest $200,000 in year zero (today) in new equipment. This investment is expected to generate net cash flows of $80,000 a year for the next 4 years (years 1-4). The salvage value after 4 years is zero. The discount rate (cost of capital) is 20% a year. Required: a) What is the net present value (NPV) of this project? NPV = $ ______ Should the firm invest, based on NPV? (1=yes, 2=no) b) What is the payback period for this project? payback period = ______ years c) What is the modified payback period for this project? - between 1 and 2 years - between 2 and 3 years - between 3 and 4 years

d) What is the accounting rate of return (ARR) for this project? To compute ARR, first compute: annual depreciation= $ ______ annual income= $ ______ average investment= $ ______ ARR = ______ % (enter say 10% as 10, not as 0.1 and not as 10%)