1

Project L requires an initial outlay at t = 0 of $67,000, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 13%. What is the project's payback? Round your answer to two decimal places.

2.

Project L requires an initial outlay at t = 0 of $55,000, its expected cash inflows are $13,000 per year for 9 years, and its WACC is 13%. What is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

3

A firm with a WACC of 10% is considering the following mutually exclusive projects:

0

1

2

3

4

5

Project 1	-$350	$80	$80	$80	$210	$210
Project 2	-$400	$300	$300	$100	$100	$100

Which project would you recommend?

Select the correct answer.

a. Project 2, since the NPV2 > NPV1.

b. Both Projects 1 and 2, since both projects have IRR's > 0.

c. Project 1, since the NPV1 > NPV2.

d. Neither Project 1 nor 2, since each project's NPV < 0.

e. Both Projects 1 and 2, since both projects have NPV's > 0.

4

Project S requires an initial outlay at t = 0 of $16,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $43,000, and its expected cash flows would be $15,000 per year for 5 years. If both projects have a WACC of 13%, which project would you recommend?

Select the correct answer.

a. Project L, because the NPVL > NPVS.

b. Project S, because the NPVS > NPVL.

c. Both Projects S and L, because both projects have NPV's > 0.

d. Both Projects S and L, because both projects have IRR's > 0.

e. Neither Project S nor L, because each project's NPV < 0.

5

A project has annual cash flows of $4,500 for the next 10 years and then $5,000 each year for the following 10 years. The IRR of this 20-year project is 13.05%. If the firm's WACC is 8%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.