Q 2

Consider the following cash flows for the two investments. What are the payback periods on the two investments?

Year	Investment A	Investment B
0	-$100	-$100
1	58	31
2	73	58
3	87	180

Question options:

1-	Project A 1.58 years; Project B 2.53 years
2-	Project A 1.46 years; Project B 2.21 years

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Q 3

You are in the lucky situation of having several customers that want to place large orders with your firm. Unfortunately you do not have the capacity to accept all of them and each order will require the purchase of a new machine. Your boss wants to know what rate of return you would get from each of the orders so that she can decide which one to accept and which ones to pass on to your competitors. Realizing the problems with IRR, you decide to use MIRR instead. Suppose you are going to select two of these three orders. Which projects should you recommend if the companys required return is 16%?

Year	Order 1	Order 2	Order 3
0	-$30,000	-$50,000	-$43,000
1	15,000	70,000	34,000
2	27,000	-19,000	28,000

Question options:

1- Order 1 and Order 2

2- Order 1 and Order 3

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Q 4

DeeDee Industries must choose between a gas-powered and an electric-powered forklift for moving materials in its factory. Since both forklifts perform the same function, the firm will choose only one. The electric-powered forklift will cost $22,000, whereas the gas-powered forklift will cost $17,600. The cost of capital that applies to both investments is 10%. The life for both types of forklift is estimated to be 6 years, during which time the net cash inflows for the electric-powered forklift will be $6,600 per year and those for the gas-powered forklift will be $5,300 per year. Annual net cash inflows include depreciation expenses. Calculate the NPV for each forklift, and decide which to recommend for purchase.

Question options:

	1- Purchase electric with an NPV of $6,744.72 which is greater than gas with an NPV of $5,482.88.
	2- Purchase electric with an NPV of $5,344.93 which is greater than gas with an NPV of $5,844.59.

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