You are considering two mutually exclusive projects with the following cash flows. Which project (s) should you accept if the discount rate is 7%? What if the discount rate is 10%?

Year 0 Project A -$275,000 Project B - $202,000

Year 1 Project A 0 Project B 113,600

Year 2 Project A 0 Project B 81,900

Year 3 Project A 360,000 Project B 47,000

2. Radiology Associated is considering an investment which will cost $ 259,000. The investment produces no cash flows for the first year. In the second year, the cash inflow is $58,000. This inflow will increase to $150,000 and then $200,000 for the following two years before ceasing permanently. The firm requires a 14% rate of return and has a required discounted payback period of three years. Accept or reject this project? Why?

3. A proposed project lasts 3 years and has an initial investment of $500,000. The after tax cash flows are estimated at $120,000 for year 1, $240,000 for year 2,and $240,000 for year 3.. The firm has a target debt/equity ratio of 0.6. The firm's cost of equity is 15% and its cost of debt is 8%. The tax rate is 35%.What is the NPV of this project? ( hint: remember that the D/E is saying that debt is 60% of equity. In other words, you need to find D/A and E/A for the appropriate weights using the formulas: D/E(1+D/E=% or weight of debt and 1/(1+D/E)=% or weight of equity.)

4. Puppy Inc. Has the following mutually exclusive investment opportunities. If the appropriate discount rate was 15% what should you do?

Year 0 Project X -500 Project Y -800

Year 1 Project X 100 Project Y 500

Year 2 Project X 475 Project Y 350

Year 3 Project X 50 Project Y 350

A. Calculate each projects payback period cutoff. Which would you accept if Puppy's payback period cutoff is 2 years?

B. Calculate each project's discounted payback period cutoff. Which would you accept if puppy's payback period cutoff is 2 years.?

C. What is the NPV for each project?