CAPITAL BUDGETING PROBLEMS

Question	Answer (Show work for full & any partial credit)
Problem #1: Which machine? Why?
Problem #2: Which machine? Why?
Problem #3: Calculate Project Evaluation Metrics	Payback: Discounted Payback: IRR: MIRR: NPV

Problem #1

Company needs to decide between two machines.

Machine A costs 10,000 and produce after tax cash flows of 3,000 per year for 5 years. No salvage.

Machine B costs 18,000 and produce after tax cash flows of 2,800 per year for 10 years. No salvage.

Discount rate is 8%

Which machine would you recommend?

Problem #2

Company needs to decide between two machines.

Machine C costs 10,000 and produce after tax cash flows of 4,000 per year for 3 years. No salvage.

Machine D costs 14,000 and produce after tax cash flows of 3,000 per year for 7 years. No salvage.

Discount rate is 8%

Which machine would you recommend?

Problem #3

Calculate NPV, Payback, Discounted Payback, IRR and Modified IRR for the following project

Initial Investment: -100,000

Annual project cash flow 22,000 for 6 years

Cost of capital is 6%