Section b, question 3

a. Given Bar Nones three-year payback period, which of the projects should be accepted? (10 marks)

2. Rank the three projects using their payback periods. Which project looks the best

using this criterion? Do you agree with this ranking? Why or why not? (5 marks)

c. If Bar-None uses a 10 percent discount rate to analyse projects, what is the discountedpayback period for each of the three projects? If the firm still maintains

its three-year payback policy for the discounted payback, which projects should the firm undertake? (15 marks)

3. Floating Homes, Inc., is a manufacturer of luxury pontoon and houseboats that sell for $40,000 to $100,000. To estimate its revenues for the following year, Floating Homes divides its boat sales into three categories based on selling price (high, medium, and low) and estimates the number of units it expects to sell under three different economic scenarios. These scenarios include a recession (Scenario I), a continuation of current conditions in which the economy is level or unchanged(Scenario II), and a strong economy (Scenario III). These estimates are as follows:

	Scenario 1 Recession	Scenario 2 Level economy	Scenario 3 Strong economy
Probability	25%	50%	25%
High priced boats
Unit sales	50	400	1,000
Average price per unit	$90,000	$90,000	$90,000
Medium-Priced Boats
Unit sales	100	800	3,000
Average price per unit	$70,000	$70,000	$70,000
Low-priced boats
Unit sales	200	1,500	5,000
Average price per unit	$50,000	$50,000	$50,000

Using these estimates, calculate the expected revenue for Floating Homes, Inc., for the following year. (12 marks)