Problem 2 (6 Marks)

For BZ Inc. the following information is given to you from their financial statements for 2018.

	2018
Sales	$8,085
Depreciation	1,085
Current assets	20,447
Cost of goods sold	1,942
Other expenses	515
Interest	579
Cash	5,000
Notes payable	600
Long-term debt	15,435
Net fixed assets	33,291
Accounts payable	4,025
Inventory	9,555
Dividend	1,011

Construct the statement of financial position (balance sheet) for BZ Inc. for end of 2018.

Problem 3 (21 marks)

Your division is considering 2 investment projects, each which requires an upfront expenditure of $25 million. You estimate the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars).

Year	Project A	Project B
0	-$25	-$25
1	$5	$20
2	$10	$10
3	$15	$8
4	$20	$6

IRR 27% 36.15%

1. What is the regular payback period for each of these projects? (6 marks)
2. What is the discounted payback period for project A? (3 marks)
3. If the projects are mutually exclusive and the cost of capital is 10%, which project or projects would you undertake? Use NPV to make the decision. (5 marks)
4. If the projects are independent and the cost of capital is 10%, which project should the firm undertake? Use NPV to make the decision. (2 marks)
5. Calculate the profitability index (PI) for both projects. Based on the PI, what is your recommendation concerning these projects if these projects are independent? Show your work. (5 marks)