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Cranes Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Linda Bentley, staff analyst at Cranes, is preparing an analysis of the three projects under consideration by Chuck Cranes, the company's owner. (Click the icon to view the data for the three projects.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. Limitations of the payback method: O A. Cannot be used when management's required rate of return varies from one period to the next. B. Fails to incorporate the time value of money and does not consider a project's cash flows after the payback period C. Cannot be used for projects with unequal periodic cash flows O D. All of the above b. Calculate the payback period for each of the three projects. Ignore income taxes. (Round your answers to two decimal places.) Project A years Project B years Project C | years Enter any number in the edit fields and then click Check Answer. 7 parts remaining Clear All Check Answer Ouestion Heln. Data Table Requirements Project B Project A Project C 1. Because the company's cash is limited, Cranes thinks the payback method should be used to choose between the capital budgeting projects. Projected cash outflow $ 3,000,000 $ 2,100,000 $ 3,000,000 Net initial investment What are the benefits and limitations of using the payback method to choose between projects? a. b. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Cranes choose? Projected cash inflows 2. Bentley thinks that projects should be selected based on their NPVS. Assume all cash flows occur at the end of the year except for initial investment amounts. Calculate the NPV for each project. Ignore income taxes. $ 1,200,000 $ 1,200,000 $ 1,700,000 Year 1 3. Which projects, if any, would you recommend funding? Briefly explain why. Year 2 600,000 1,700,000 1,200,000 Year 3 1,200,000 500,000 200,000 Print Done 1,200,000 100,000 Year 4 Required rate of return 6% 6% 6% Reference Present Value of $1 2% 10% 12% 14% 16% 18% 20% 22% 40% Periods 6% 0.943 8% 24% 0.806 26% 0.794 28% 0.781 0.610 30% 32% 0.758 0.574 Periods 0.926 0.962 0.893 0.797 0.877 0.769 0.675 0.862 0.769 0.980 0.909 0.847 0.833 0.820 0.714 0.961 0.826 0.718 0.694 0.672 0.630 0.925 0.890 0.857 0.743 0.650 0.592 0.510 2 0.889 0.855 0.840 0.794 0.641 0.524 0.500 0.435 0.329 0.250 0.189 0.942 0.751 0.712 0.609 0.579 0.551 0.477 0.455 0.364 3 0.260 0.924 0.792 0.735 0.683 0.621 0.636 0.592 0.552 0.516 0.482 0.451 0.423 0.397 0.373 0.350 4 0.519 0.456 0.269 0.207 0.159 0.402 0.341 0.275 5 0.906 0.822 0.747 0.681 0.567 0.476 0.437 0.370 0.315 0.291 0.186 0.133 5 0.370 0.303 0.249 0.204 0.167 0.227 0.178 0.888 0.790 0.705 0.630 0.583 0.540 0.564 0.507 0.410 0.335 0.250 0.198 0.354 0.305 0.263 0.871 0.760 0.400 0.351 0.665 0.513 0.452 0.314 0.279 0.222 0.143 0.095 0.853 0.837 0.266 0.108 0.082 0.731 0.703 0.627 0.467 0.404 0.233 0.179 0.157 0.139 0.123 0.068 0.592 0.500 0.463 0.424 0.361 0.308 0.225 0.194 0.144 0.125 0.108 0.094 0.048 0.270 0.237 0.820 0.804 0.788 0.386 0.085 0.066 0.052 0.073 0.056 0.035 10 0.676 0.558 0.322 0.227 0.191 0.162 0.137 0.116 0.099 0.062 10 0.527 0.287 0.162 0.112 0.079 0.047 11 0.650 0.429 0.350 0.195 0.168 0.135 0.094 0.025 11 0.397 0.368 12 0.625 0.497 0.319 0.257 0.208 0.137 0.112 0.092 0.076 0.062 0.050 0.043 0.036 0.018 12 0.601 13 0.773 0.469 0.290 0.229 0.182 0.145 0.116 0.093 0.075 0.061 0.040 0.033 0.027 0.013 13 0.205 0.183 0.125 0.099 0.078 0.049 0.032 0.025 0.020 0.015 14 0.758 0.577 0.442 0.340 0.263 0.160 0.062 0.039 0.021 0.009 14 0.743 0.728 0.555 0.140 0.123 0.108 15 0.417 0.315 0.239 0.108 0.084 0.065 0.051 0.040 0.031 0.025 0.016 0.006 15 0.163 0.146 0.071 0.005 16 0.534 0.394 0.292 0.218 0.093 0.054 0.042 0.032 0.025 0.019 0.015 0.012 16 0.080 17 0.714 0.513 0.371 0.270 0.198 0.060 0.045 0.034 0.026 0.020 0.012 0.009 0.003 17 in Print Done Reference Present Value of Annuity of $1.00 in Arrears* 40% 16% 0.862 20% 22% 30% 0.769 Periods Periods 2% 0.980 1.942 4% 0.962 6% 0.943 8% 0.926 10% 12% 14% 18% 0.847 1.566 2.174 24% 26% 28% 32% 0.820 0.893 1.690 0.833 1.528 0.909 0.877 0.806 0.794 0.781 0.758 0.714 1.392 1.224 1.886 1.833 1.783 1.736 1.647 1.605 1.492 1.457 1.424 1.361 1.331 2.577 3.312 3.993 4.623 2.322 2.914 3.433 3.889 2.042 1.816 2.166 2.436 2.643 2.802 2.925 2.884 2.775 2.673 2.487 2.402 2.246 2.106 1.981 1.923 1.868 1.766 1.589 3.808 2.404 1.849 4 3.630 3.465 3.170 3.037 2.798 2.690 2.589 2.494 2.320 2.241 2.096 2.635 2.885 4.713 4.452 4.212 3.791 3.605 3.274 3.127 2.991 2.864 2.745 2.532 2.345 2.035 5.601 3.167 5.242 4.917 4.355 4.111 4.564 4.968 3.685 3.498 3.326 3.020 2.759 2.534 2.168 6.472 6.002 5.582 5.206 4.868 4.288 4.039 4.344 4.607 3.812 3.605 3.416 3.242 3.083 2.937 2.677 2.263 6.210 4.639 3.076 2.331 8 7.325 6.733 5.747 5.335 4.078 3.837 3.619 3.421 3.241 2.786 3.184 3.269 6.247 6.710 8.162 6.802 7.360 7.887 3.786 9. 7.435 5.759 5.328 4.946 4.303 4.031 3.566 3.366 3.019 2.868 2.379 6.145 2.930 2.978 10 8.983 8.111 5.650 5.216 4.833 4.494 4.192 3.923 3.682 3.465 3.092 2.414 10 5.029 5.197 4.327 4.439 11 9.787 8.760 7.139 6.495 5.938 5.453 4.656 4.035 3.776 3.543 3.335 3.147 2.438 11 8.384 8.853 9.295 9.712 5.660 12 10.575 9.385 7.536 6.814 6.194 4.793 4.127 3.851 3.606 3.387 3.190 3.013 2.456 12 5.342 5.468 13 11.348 9.986 7.904 7.103 6.424 5.842 4.910 4.533 4.203 3.912 3.656 3.427 3.223 3.040 2.469 13 10.563 7.367 3.695 3.459 3.061 14 12.106 8.244 6.628 6.002 5.008 4.611 4.265 3.962 3.249 2.478 14 5.092 15 12.849 11.118 8.559 7.606 6.811 6.142 5.575 4.675 4.315 4.001 3.726 3.483 3.268 3.076 2.484 15 11.652 12.166 7.824 6.265 5.668 4.357 3.088 3.097 16 13.578 10.106 8.851 6.974 5.162 4.730 4.033 3.751 3.503 3.283 2.489 16 10.477 17 14.292 9.122 8.022 7.120 6.373 5.749 5.222 4.775 4.391 4.059 3.771 3.518 3.295 2.492 17 Print Done Reference Compound Amount of $1.00 (The Future Value of $1.00) 20% 10% Periods 2% 4% 6% 8% 1.080 1.166 12% 1.120 14% 16% 1.160 1.346 18% 1.180 22% 24% 26% 28% 1.280 1.638 2.097 30% 32% 1.320 1.742 40% 1.400 1.960 Pe 1.200 1.440 1.728 1.260 1.060 1 1.020 1.040 1.100 1.140 1.220 1.240 1.300 1.124 1.191 1.262 1.254 1.405 1.040 1.082 1.210 1.300 1.392 1.488 1.538 1.588 1.690 1.331 1.464 1.611 1.772 1.816 1.907 3 1.061 1.125 1.260 1.482 1.561 1.643 2.000 2.197 2.300 2.744 1.811 2.100 2.436 1.939 2.288 3.842 5.378 1.082 1.104 1.360 2.215 2.703 3.036 4.007 4 1.170 1.574 1.689 2.074 2.488 2.364 2.520 2.684 2.856 1.925 1.217 1.338 1.469 1.762 2.932 3.176 3.436 3.713 1.587 6. 1.126 1.149 1.265 1.419 1.974 2.195 2.700 2.986 3.297 3.635 4.002 4.398 4.827 5.290 7.530 3.583 1.504 4.508 1.316 1.714 1.949 2.211 2.502 2.826 3.185 4.023 5.042 5.629 6.275 6.983 10.541 9.217 1.851 1.999 3.278 7.206 9.223 1.172 1.369 1.594 2.144 2.476 2.853 3.759 4.300 4.908 5.590 6.353 8.157 14.758 2.358 2.773 5.160 6.931 9. 1.195 1.423 1.689 3.252 3.803 4.435 5.987 8.005 10.604 12.166 20.661 16.060 21.199 10.086 12.708 16.012 10 1.219 1.480 1.791 2.159 2.594 3.106 3.707 4.411 5.234 6.192 7.305 8.594 11.806 13.786 28.925 17.922 23.298 1.243 1.268 2.332 3.479 3.896 8.912 10.872 11 1.539 1.898 2.853 4.226 5.117 6.176 7.430 10.657 15.112 40.496 19.343 24.759 31.691 40.565 27.983 36.937 1.601 1.665 56.694 79.371 111.120 4.818 8.916 13.215 12 2.012 2.518 3.138 5.936 7.288 2.720 2.937 2.133 3.452 6.886 13 1.294 4.363 5.492 8.599 10.699 13.264 16.386 20.175 30.288 14 1.319 1.732 2.261 3.797 4.887 6.261 7.988 10.147 12.839 16.182 20.319 25.421 39.374 48.757 1.801 25.196 15 1.346 2.397 3.172 4.177 5.474 7.138 9.266 11.974 15.407 19.742 32.030 51.186 64.359 155.568 4.595 6.130 6 866 14.129 16 672 40.358 16 1.373 1.873 1 948 2.540 2 693 3.426 8.137 10.748 12 468. 18.488 24.086 29 384 31.243 38 741. 51.923 66 461. 66.542 84.954 217.795 22 186. 1 9 276 5.054. 50.851 304 913 17 3.700 86 504 112 139 Print Done Reference Compound Amount of Annuity of $1.00 in Arrears* (Future Value of Annuity) 20% 2% 10% 14% 18% 32% Periods 4% 6% 8% 12% 16% 22% 24% 26% 1.000 2.260 3.848 5.848 28% 30% 1.000 1.000 2.140 1.000 2.220 3.708 5.524 1.000 1.000 1.000 1.000 1.000 2.320 4.062 1.000 2.020 3.060 4.122 1.000 1.000 1.000 2.100 1.000 1.000 1.000 2.200 3.640 2.240 2.040 3.122 4.246 2.060 2.080 2.120 2.160 2.180 2.280 2.300 3.506 5.066 3.990 6.187 3.184 4.375 3.310 4.641 3.246 3.374 3.440 3.572 3.778 3.918 4.779 6.353 4.506 4.921 5.215 5.368 5.684 6.016 6.362 8.048 10.980 14.615 8.700 12.136 16.534 22.163 29.369 6.105 7.716 6.877 8.977 7.154 7.442 9.398 5.204 5.416 5.637 5.867 6.610 7.740 8.368 9.043 6.308 8.115 10.089 12.300 9.930 12.916 6.633 6.975 7.336 8.536 9.442 10.442 11.544 12.756 13.406 18.696 8.394 9.897 7.434 7.898 8.923 9.487 10.730 11.414 12.142 13.740 15.546 17.583 19.123 24.712 31.643 40.238 50.895 64.110 80.496 100.815 10.637 11.436 13.579 17.762 22.670 28.657 8.583 9.214 13.233 14.240 15.327 16.499 20.588 23.858 25.678 3 12.488 14.487 19.086 26.940 34.945 34.895 9. 9.755 10.583 11.491 14.776 16.085 19.337 23.045 17.519 20.799 32.015 17.549 20.655 25.959 32.150 10 10.950 12.006 13.181 15.937 21.321 23.521 38.593 42.619 47.062 28.755 34.931 25.733 11 12.169 13.486 14.972 16.645 18.531 35.962 45.031 57.739 50.398 56.405 63.122 18.977 21.495 24.215 44.874 65.510 84.853 12 13.412 15.026 16.870 21.384 24.133 27.271 30.850 39.581 74.327 84.320 13 32.089 48.497 73.751 93.926 97.625 127.913 13 14.680 16.627 18.882 24.523 28.029 36.786 42.219 55.746 112.303 19 43.672 50.818 69.010 14 15.974 18.292 21.015 27.975 32.393 37.581 59.196 109.612 149.240 27 43.842 119.347 15 17.293 20.024 23.276 27.152 31.772 37.280 51.660 60.965 72.035 85.192 141.303 167.286 197.997 38 42.753 126.011 16 18.639 21.825 25.673 20.012. 23698. 30.324 35.950 50.980 60.925 72.939 87.442 104.935 151.377 191 735. 181.868 218.472 262.356 347 309. 54 28. 213. 129 020 157 253 233 791 285.014 17 33 750. 40.545. 48 884. 59 118. 71 673. 87.068. 105 931 Done Print