Question 1 (evaluating investment projects) Generic Motors Corporation is planning to invest $75,000 in year zero (today) in new equipment. This investment is expected to generate net cash flows of $30,000 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 yearsbetween 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=$