1. L-/S Points DETAILS MY NOTES PRACTICE ANOTHER ASK YOUR TEACHER Question 1: Evaluating investment projects You are planning to invest $75,000 in new equipment. This investment will generate net cash flows of $45,000 a year for the next 2 years. The salvage value after 2 years is zero. The cost of capital is 25% a year. a) Compute the net present value NPV = $ Enter negative numbers with a minus sign, i.e., -100 not ($100) or (100). Should you invest? Why? O YES -- the NPV is positive, which indicates that the investment is profitable ONO -- the NPV is negative, which indicates that the investment is unprofitable YES -- the NPV is negative, which indicates that the investment will reduce costs years b) Compute the payback period. payback period = c) Compute the accounting rate of return (ARR). To compute ARR, first compute: annual depreciation=$1 annual income=$ average investment=$| ARR = If your answer is 10%, enter 10 without the percent sign. d) Which of the three methods in (a)-(c) should you use in real life? NPV only payback method only ARR only always use all three methods to reach the best decision % DETAILS MY NOTES 2 1-15 Points) ASK YOUR TEACHER PRACTICE ANOTHER Question 2: Evaluating investment projects You are planning to invest $30,000 in research & development (R&D). This investment will generate cost savings of $21,000 in year 1 and $15,000 in year 2. After 2 years, the salvage value is zero. The cost of capital is 25% a Year