Problem
1) A certain project has a project cost of $387,000 and the annual inflows resulting from the product created is $64,000. What is the Payback Period?
Assume that $654,980 is to be invested in a project whose annual projected cash flows are as follows: Year 1 = $135,678, Year 2 = $156,560, Year 3 = $233,980, and Year 4 = $298,000. Assume that the required rate of return is 6.50%.
• Compute the NPV directly (i.e., without using the Microsoft Excel NPV or PV functions). Be sure to show your work.
• Should the project be pursued? Why or why not?
2) Assume that $1,285,673 is to be invested in a project whose annual projected cash flows are as follows: Year 1 = $235,678, Year 2 = $267,854, Year 3 = $298,054, Year 4 = $314,567, and Year 5 = $325,678. Assume that the required rate of return is 5.25%.
• Compute the NPV by using Microsoft Excel's NPV function. Be sure to show your work.
• Should the project be pursued? Why or why not?
3) A company has two projects that are under evaluation. The project investment costs, annual projected cash flows, and required rates of return are shown below:
Project 1 Project 2
Rate of Return: 0.065 0.065
Project Cost: -$1,397,654 -$1,619,835
Year 1 $245,367 $267,345
Year 2 $302,542 $343,563
Year 3 $316,543 $367,834
Year 4 $367,843 $432,098
Year 5 $450,425 $589,435
• Compute the NPV for each project using Microsoft Excel NPV's function. Be sure to show your work.
• Which project should be pursued? Why?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.