W E21-27 (similar to) Question Help Fitzgibbons Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $15,000,000 for the year. Lori Bickerson, staff analyst at Fitzgibbons, is preparing an analysis of the three projects under consideration by Cullin Fitzgibbons, the company's owner. E (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. Requirement 1. Because the company's cash is limited, Fitzgibbons thinks the payback method should be used to choose between the capital budgeting projects. a. What are the benefits and limitations of using the payback method to choose between projects? Benefits of the payback method: OA. Utilizes the time value of money and computes each project's unique rate of return CB. Easy to understand and captures uncertainty about expected cash flows in later years of a project OC. Indicates whether or not the project will earn the company's minimum required rate of return OD. All of the above A Data Table Project A Project B Project C Projected cash outflow Net initial investment $ 6,600,000 $ 8,500,000 $ 9,000,000 Projected cash inflows Year 1 $ Year 2 3,600,000 $ 5,500,000 $ 4,900,000 3,600,000 2,000,000 4,900,000 3,600,000 1,100,000 200,000 3,600,000 100,000 Year 3 Year 4 Required rate of return 6% 6% 6% Print Print Done Done Requirements 1. Because the company's cash is limited, Fitzgibbons thinks the payback method should be used to choose between the capital budgeting projects. a. What are the benefits and limitations of using the payback method to choose between projects? b. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Fitzgibbons choose? 2. Bickerson 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. 3. Which projects, if any, would you recommend funding? Briefly explain why. Print Done 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 Project C years years Requirement 2. Calculate the NPV for each project. Ignore income taxes. The net present value method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows back to the present point in time using the required rate of return. Requirement 3. Which projects, if any, would you recommend funding? Briefly explain why