1)

As the d|rector of cap|ta| budget|ng for A8C Corporat|on you are eva|uat|ng two mutua||y exc|us|ve
pro[ects w|th the fo||ow|ng net cash f|ows
ear ro[ect k ro[ect
0 100000 LL 100000 LL
1 S0000 10000
2 40000 30000
3 30000 40000
4 10000 60000
Wr|te br|ef|y wh|ch of the two pro[ects wou|d you recommend and why
Ior pro[ect k
ear 0 1 2 3 4
NCI $ (100000) $ 30000 $ 40000 $ 30000 $ 10000
Cumm NCI $ (100000) $ (30000) $ (10000) $ 20000 $ 30000

ro[ect k ayback per|od 2 + (10000]30000) 2333 years
Ior pro[ect
ear 0 1 2 3 4
NCI $ (100000) $ 10000 $ 30000 $ 40000 $ 60000
Cumm NCI $ (100000) $ (90000) $ (60000) $ (20000) $ 40000

ro[ect ayback per|od 3 + (20000]60000) 3333 years
## Accord|ng|y pro[ect k |s better for |ower payback per|od ##

2)
ro[ect k has a cost of 5S212S |ts expected net cash |nf|ows are 512000 per year for 8 years What |s
the pro[ect's payback per|od?

ear 0 1 2 3 4 S 6 7 8
NCI
$
(32123)
$
12000
$
12000
$
12000
$
12000
$
12000
$
12000
$
12000
$
12000
Cumm
NCI
$
(32123)
$
(40123)
$
(28123)
$
(16123)
$
(4123)
$
7873
$
19873
$
31873
$
43873

ro[ect k ayback per|od 4 + (412S]12000) 4344 years

3)
G|ven the fo||ow|ng cash f|ows for a cap|ta| pro[ect ca|cu|ate the NV and Ikk 1he requ|red rate of
return |s 8 percent
ear Cash I|ow
0 S0000 LL
1 1S000
2 1S000
3 20000
4 10000
S S000

I|nd the pro[ect's
a) ayback per|od
b) D|scounted payback per|od
c) NV
d) Ikk


a) ayback per|od
ear 0 1 2 3 4 S
NCI
$
(30000)
$
13000
$
13000
$
20000
$
10000
$ 3000
Cumm NCI
$
(30000)
$
(33000)
$
(20000)
$
0
$
10000
$ 13000

ro[ect ayback per|od 2 + (20000]20000) 3 years
b) D|scounted payback per|od
ear 0 1 2 3 4 S
NCI $
(30000)
$
13000
$
13000
$
20000
$
10000
$
3000
VII
(008n)
0926 0837 0794 0733 0681
D|sc
NCI
$
(30000)
$
13890
$
12833
$
13880
$
7330
$
3403
D|sc
Com
NCI
$
(30000)
$
(36110)
$
(23233)
$
(7373)
$
(23)
$
3380

ro[ect d|scounted payback per|od 4 + (2S]340S) 4007 years
c) NV
ear 0 1 2 3 4 S
NCI $
(30000)
$
13000
$
13000
$
20000
$
10000
$
3000
VII
(008n)
0926 0837 0794 0733 0681
D|sc
NCI
$
(30000)
$
13890
$
12833
$
13880
$
7330
$
3403

NV S0000 + 13890 + 128SS + 1S880 + 73S0 + 340S 3380
d) Ikk
ear 0 1 2 3 4 S
NCI
$
(30000)
$
13000
$
13000
$
20000
$
10000
$
3000

Ikk 1088
4)
1he Costa k|can Coffee Company |s eva|uat|ng the w|th|np|ant d|str|but|on system for |ts new
roast|ng gr|nd|ng and packag|ng p|ant 1he two a|ternat|ves are (1) a conveyor system w|th a h|gh
|n|t|a| cost but |ow annua| operat|ng costs and (2) severa| fork||ft trucks wh|ch cost |ess but have
cons|derab|y h|gher operat|ng costs 1he dec|s|on to construct the p|ant has a|ready been made and
the cho|ce here w||| have no effect on the overa|| revenues of the pro[ect 1he cost of cap|ta| for the
p|ant |s 9 percent and the pro[ects' expected net costs are as fo||ows
ear Conveyor Iork||fts
0 (5300000) (5120000)
1 (66000) (96000)
2 (66000) (96000)
3 (66000) (96000)
4 (66000) (96000)
S (66000) (96000)
What |s the V of costs for each a|ternat|ve? Wh|ch one shou|d be chosen?

ear Conveyor VII(009n) Conveyor NV Iork||fts VII(009n)
Iork||fts
NV
0
$
(300000)
$
(300000)
$
(120000)
$
(120000)
1
$
(66000)
0917
$
(60322)
$
(96000)
0917
$
(88032)
2
$
(66000)
0842
$
(33372)
$
(96000)
0842
$
(80832)
3
$
(66000)
0772
$
(30932)
$
(96000)
0772
$
(74112)
4
$
(66000)
0708
$
(46728)
$
(96000)
0708
$
(67968)
S
$
(66000)
0630
$
(42900)
$
(96000)
0630
$
(62400)

1ota| conveyor cash out f|ows NV 5 SS6674
1ota| fork||fts cash out f|ows NV 5 493344 ## 8est Cpt|on##