1. the changes in the discount rate?

10-6

• The Wolf Co. is considering purchasing new machinery for its business line.
• This investment requires initial cash outlay of $150,000 and would generate cash inflow of $20,000 per year for 15 years.

1. If the required rate of return is 5%, calculate the projects Discounted Payback Period.
2. If the required rate of return is 10%, calculate the projects Discounted Payback Period.
3. Would the project be accepted under part (a) or (b)? Explain.

10-7

• The Rabbit Co. is considering two projects: A and B.
• Both projects are subject to a 5-year loan from the bank, and a 15% annual interest rate.

	Project A	Project B
Initial outlay, Year 0	-$50,000	-$25,000
Inflow, Year 1	$20,000	$7,000
Inflow, Year 2	$20,000	$7,000
Inflow, Year 3	$10,000	$7,000
Inflow, Year 4	$10,000	$7,000
Inflow, Year 5	$30,000	$7,000
Inflow, Year 6	$30,000	$7,000

1. Calculate the Payback Period for each project.

• Project A:
• Project B:

2. Which project(s) should be accepted, if the two projects are independent? Explain.
3. Which project(s) should be accepted, if the two projects are mutually exclusive? Explain.