Payback, Accounting Rate of Return, Present Value, Net Present Value,

Internal Rate of Return

All scenarios are independent of all other scenarios. Assume that all cash flows are after$-$tax cash flows.

a$)$Kambry Day is considering investing in one of the following two projects. Either project will require an investment of $$20,000.$ The expected cash flows for the two projects follow.

Assume that each project is depreciable.

Year $1$

Project A$=6000$

Project B$=6000$

Year $2$

Project A$=8000$

Project B$=8000$

Year $3$

Project A$=10000$

Project B$=10000$

Year $4$

Project A$=10000$

Project B$=3000$

Year $5$

Project A$=10000$

Project B$=3000$

b$.$ Wilma Golding is retiring and. has the option to take her retirement as a lump sum of $450,000$ or to reccive $30,000$ per year for $20$ years. Wilma's required rate of return is o percent.

c$)$ David Booth is interested in investing in some tools and equipment so that he can do independent drywalling. The cost of the tools and equipment is $$30,000.$ He estimates that the return from owning his own equipment will be $9,000$ per year. The tools and equipment will last six years.

D$)$Patsy Folson is evaluating what appears to be an attractive opportunity. She is currently the owner of a small manufacturing company and has the opportunity to acquire another small company's equipment that would provide production of a part currently purchased exter$-$nally. She estimates that the savings from internal production will be $$75,000$ per year. She estimates that the equipment wil last $10$ years. The owner is asking $$400,000$ for the equip$-$ment. Her company's cost of capital is $8$ percent.

Required:

$1)$Conceptual Connection: What is the payback period for each of Kambry Day's projects? $1$f rapid payback is important, which project should be chosen? Which would you choose?

$2)$Conceptual Connection: Which of Kambry's projects should be chosen based on the ARR?

Explain why the ARR pertorms hetter than the payback period in this setting.

$3.$ Assuming that Wilma Golding, will live for another $20$ years, should she take the lump sum or the annuity?

$4.$ Assumine a required rate of retum of $8$ percent for David Booth, calculate the NPV of the investments $.$ should David invest?

Calculate the IRR for PATSY Folsons project, Should Parsy acquire the equipment?