Queen Elizabeth Enterprises is considering three new projects which will each require an investment in new equipment costing $45,000. Each project will last for 3 years and generate the following cash inflows:
Project A Year 1 $13,640, Year 2 $19,500 Year 3 $29,200
Project B Year 1 $18,380 Year 2 $19,500 Year 3 $20,600
Project C Year 1 $30,200 Year 2 $19,500 Year 3 $19,760
The equipment has no salvage value. Straight line depreciation is used and the cost of capital (discount rate) is 10%.
What is the cash payback period for project A? _________________________ years
What is the cash payback period for project B? __________________________ years
What is the cash payback period for project C? __________________________ years
What is project A’s net present value? $__________________________________
What is project B’s net present value? $__________________________________
What is project C’s net present value? $__________________________________
What is project A’s present value index? _______________________________
How much net income will be generated by project B over the three year period? $________________________________
What is the average rate of return for project C? $ _______________________________