Chapter 5,

#### Question #1,

oseph Software, Inc., has the following mutually exclusive projects.

Year

Project A

Project B

0

–$22,000

–$25,000

1

13,000

14,000

2

9,500

10,500

3

3,100

9,500

**a-1.**

Calculate the payback period for each project. **(Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)**

Payback period

Project A

years

Project B

years

**a-2.**

Which, if either, of these projects should be chosen?

Project A

Project B

Both projects

Neither project

**b-1.**

What is the NPV for each project if the appropriate discount rate is 16 percent? **(A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)**

NPV

Project A

$

Project B

$

**b-2.**

Which, if either, of these projects should be chosen if the appropriate discount rate is 16 percent?

Project A

Project B

Both projects

Neither project

#### Answer:#2

Jennifer Silence, Inc., has a project with the following cash flows:

Year

Cash Flow

0

–$

28,100

1

12,100

2

15,100

3

11,100

The required return is 15 percent. What is the IRR for this project? **(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)**

IRR

%

Should the firm accept the project?

Accept

Reject

#### Answer:#3

Nap plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $390,000, to be paid immediately. Bill expects aftertax cash inflows of $85,000 annually for six years, after which he plans to scrap the equipment and retire to the beaches of Nevis. The first cash inflow occurs at the end of the first year. Assume the required return is 10 percent.

What is the project’s profitability index (PI)? **(Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.)**

PI

#### Answer: #4

Berlik investment project has annual cash inflows of $3,400, $4,300, $5,500, and $4,700, and a discount rate of 13 percent.

What is the discounted payback period for these cash flows if the initial cost is $6,100? **(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)**

Discounted payback period

years

What is the discounted payback period for these cash flows if the initial cost is $8,200? **(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)**

Discounted payback period

years

What is the discounted payback period for these cash flows if the initial cost is $11,200? **(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)**

Discounted payback period

years

#### Answer:#5

Compute the internal rate of return for the cash flows of the following two projects **(Do not round intermediate calculations.** **Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)**:

Year

Project A

Project B

0

–$

15,300

–$

12,900

1

6,000

3,200

2

6,800

9,700

3

5,600

5,200

Internal rate of return

Project A

Project B

Answer: