1) A project requires an initial cash outlay of $40,000 and has expected cash inflows of $12,000 annually for 7 years. The cost of capital is 10%. What is the project's discounted payback period? Show your work.
2) Company A has the opportunity to do any, none, or all of the projects for which the net cash flows per year are shown below. Projects A and C can be done together. Projects B and C can be done together. But Projects A and B are mutually exclusive. The company has a cost of capital of 18%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.
| |
A |
B |
C |
| 0 |
-500 |
-500 |
-600 |
| 1 |
200 |
-200 |
100 |
| 2 |
200 |
600 |
100 |
| 3 |
200 |
400 |
100 |
| 4 |
200 |
200 |
100 |
| 5 |
200 |
-300 |
100 |
| 6 |
200 |
|
100 |
| 7 |
-300 |
|
100
|