Assignment 4

1. (3 points) Compute Discounted Payback (DPB) for both projects (A and B). Based on the DPB method, which project should the company accept if they are mutually exclusive projects.

Year	Project A CFs	Project B CFs
0 (NINV)	-100,000	-100,000
1	$50,000	$20,000
2	$50,000	$20,000
3	$50,000	$20,000
4	$20,000	$50,000
5	$20,000	$50,000
6	$20,000	$50,000

Cost of capital for both projects = 11%

2. (3.5 points) Consider the two unequal (repeating) projects below, which project should the company pick if the two projects are repeating projects? (Use either EAA or Replacement chain method). WACC = 10%.

Year	Project D CFs	Project E CFs
0 (NINV)	-100,000	-100,000
1	$30,000	$45,000
2	$30,000	$45,000
3	$30,000	$45,000
4	$30,000
5	$30,000
6	$30,000

3. (5 points) Consider projects cash flows with the salvage value. Determine the Physical like vs economic life NPVs and suggest the best time to end the project? Use 10% as the cost of capital.

Year	Project CFs	Salvage Value
0 (NINV)	-100,000	100,000
1	$60,000	50,000
2	$70,000	$35,000
3	$80,000	$20,000