10-4

The Fox Co. is considering three mutually exclusive projects: Project K, Project L, and Project M.

Project K has an initial cash outlay of $50,000 and expected cash flows of $18,000 at the end of each year for 4 years.

Project L has an initial cash outlay of $60,000 and expected cash flows of $17,000 at the end of each year for 5 years.

Project M has an initial cash outlay of $80,000 and expected cash flows of $19,000 at the end of each year for 8 years.

The applicable required rate of return for all three projects is 11%.

a. Calculate the Payback Period of each project and interpret its meaning. Which project(s) should be accepted? Explain.

b. Calculate the Discounted Payback Period of each project and interpret its meaning. Which project(s) should be accepted? Explain.

c. Calculate the Profitability Index of each project and interpret its meaning. Which project(s) should be accepted? Explain.

d. Calculate the projects Net Present Value of each project and interpret its meaning. Which project(s) should be accepted? Explain.

e. Calculate the projects Internal Rate of Return of each project and interpret its meaning. Which project(s) should be accepted? Explain.

f. Based on your analysis above, which project(s) should be accepted? Explain.

g. Which project(s) should the project be accepted, if the three projects were independent? Explain.