Respond to the following questions in an Excel Workbook with a sheet for each question. Name each sheet Question 1, Question 2, etc. For full possible credit, show how you have calculated your answer. Use the Present Value Tables which are in your textbook on pages 647 & 648.

#1 Payback

The cost of each project is 1,000

The cash flows are:

Project Project

Year A B

1 $100 $500

2 200 400

3 300 300

4 400 100

5 500 ------

6 600 ------

a) What is the payback for Project A and for Project B?

b) Which project would you select?

c) Why would you select this project?

d) What are the advantages and disadvantages of the payback method?

#2 Accounting Rate of Return (ARR)

Consider this investment:

Initial investment $6,500

Estimated life 10 years

Cash inflows per year $500

Depreciation by straight line $325

A.What is the Accounting Rate of Return?

#3 Net Present Value (NPV)

Initial investment $12,950

Estimated life 10 years

Annual cash inflows $3,000

Cost of capital (minimum required rate of return) 12%

A.What is the present value of this investment?

B.Would you recommend taking on this investment?

C.At what point is an investment being evaluated using the net present value method worth taking on?

#4 Internal Rate of Return (IRR)

Assume the same data given in #3.

Determine the internal rate of return. If your results are in between to percentages, share to what percentage your results are closest.