Question 1) Creative Solutions, Inc., has just invested $3,689,400 in new equipment. The firm uses a payback period criteria of not accepting any project that takes more than four years to recover its costs. Management anticipates cash flows of $788,400, $1,012,200, $823,000, $1,051,700, $2,231,700, and $2,465,500 over the next six years. (Round answer to 2 decimal places, e.g. 15.25.)
What is the payback period of this investment? _____ years
Should Creative Solutions, Inc. go ahead with this project?
Question 2) Morningside Bakeries recently purchased equipment at a cost of $611,500. Management expects the equipment to generate cash flows of $286,250 in each of the next four years. The cost of capital is 17 percent. What is the MIRR for this project?
MIRR_____%
Question 3) Management of Sycamore Home Furnishings is considering acquiring a new machine that can create customized window treatments. The equipment will cost $241,550 and will generate cash flows of $67,750 over each of the next six years. If the cost of capital is 10 percent, what is the MIRR on this project?
MIRR ____ %
Question 4) Flowers Unlimited is considering purchasing an additional delivery truck that will have a seven-year useful life. The new truck will cost $47,000. Cost savings with this truck are expected to be $14,300 for the first two years, $10,000 for the following two years, and $5,600 for the last three years of the truck’s useful life.
What is the payback period for this project? ____years
What is the discounted payback period for this project with a discount rate of 10 percent? ____years
Question 5) West Street Automotive is considering adding state safety inspections to its service offerings. The equipment necessary to perform these inspections will cost $524,000 and will generate cash flows of $183,000 over each of the next five years.
If the cost of capital is 13 percent, what is the MIRR on this project? MIRR____%