Questions and Problems Basic (Questions 1-18) 1. Calculating Payback (LO2) What is the payback period for the following set of cash flows? Year Cash Flow 0 -$5,500 1,300 1,500 W N 1,900 1,400 2. Calculating Payback (LO2) An investment project provides cash inflows of $585 per year for eight years. What is the project payback period if the initial cost is $1,700? What if the initial cost is $3,300? What if it is $4,900? 3. Calculating Payback (LO2) Mckernan Inc. imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should they accept either of them? Year Cash Flow (A) Cash Flow (B) 0 -$60,000 -$ 70,000 23,000 15,000 N 28,000 18,000 3 21,000 26,000 4 8,000 230,000 4. Calculating Discounted Payback (LO3) An investment project has annual cash inflows of $4,200, $5,300, $6, 100, and $7,400, and a discount rate of 14%. What is the discounted payback period for these cash flows if the initial cost is $7,000? What if the initial cost is $10,000? What if it is $13,000? 5. Calculating Discounted Payback (LO3) An investment project costs $ 10,000 and has annual cash flows of $2,900 for six years. What is the discounted payback period if the discount rate is 0%? What if the discount rate is 5%? If it is 19%? 16. Calculating AAR (LO4) You're trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,854,300, $1,907,600, $1,876,000, and $1,329,500 over these four years, what is the project's average accounting return (AAR)? 17. Calculating IRR (LOS) A firm evaluates all of its projects by applying the IRR rule. If the required return is 16%, should the firm accept the following project? Year Cash Flow 0 -$28,000 12,000 15,000 11,000