1. Facts Enterprises is trying to select the best investment from among four alternative independent projects presented by their respective firms. Each alternative involves an initial outlay of $80,000 and a 10% cost of capital. Management requires that all project investments should be recovered in 4 years. Their cash flows follow:

Year	Sun Ltd	Moon Ltd	Best Ltd	Pep Ltd
1	30,000	20,000	20,500	0
2	25,000	30,000	20,500	30,000
3	20,000	0	20,500	0
4	15,000	20,000	20,500	28,000
5	10,000	10,000	20,500	25,000
6	5,000	30,000	0	40,000

1. Calculate each project’s Payback Period. Based on the payback periods, which project(s) should they accept if the project(s) are independent? Which project(s) should they accept if the projects are mutually exclusive?

2. Calculate each project’s Net Present Value (NPV). Based on the NPVs, which project(s) should they accept if the project(s) are independent? Which project(s) should they accept if the projects are mutually exclusive?

3. Calculate the discounted payback period for the projects with positive NPVs.

4. What does it mean for projects to be mutually exclusive? How should managers rank mutually exclusive projects?

B. What are the strengths and weaknesses of each of the following capital budgeting techniques below?
Payback ARR Profitability Index
IRR

Answer rating: 100% (QA)

Payback period id the number of years it takes to recoup the initial investment Suns payback 3500015... View the full answer