The homework has 6 problems. Please show your work for each problem for credit.

1) Your firm is considering a project that has the following set of cash flows:

Year Cash Flow

0 $100,000 1 30,000 2 40,000 3 50,000 4 80,000

What is the (regular) payback period for this project?

2) If the required rate of return for the project in problem 1 is 15%, what is the discounted payback period for the project?

3) A firm is planning to install new equipment to the existing manufacturing facility to improve the production efficiency. The equipment costs $1,000,000, which will be depreciated straight line to zero over its five-year life. The investment is expected to generate net incomes of $40,000, $50,000, $70,000, $90,000, and $100,000 for year 1, year 2, year 3, year 4, and year 5, respectively. Calculate the average accounting return (AAR).

4) Your firm is considering a project that provides the following projected cash flows.

Year Cash Flow 1 $400,000 2 500,000 3 700,000 4 900,000 5 1,200,000

The projects initial investment is $2,000,000. The required return for this project is 14 percent. Find the projects net present value (NPV). Is this a good project based on the NPV decision rule? Why?

5) A project that requires 15 percent return has the following expected cash flows.

Year Cash Flow 1 $90,000 2 100,000 3 110,000 4 120,000 5 130,000

The initial investment is $300,000. Find the profitability index (PI).

6) A firm is considering an investment project with the following cash flows. The company has a 13 percent required rate of return.

Year Cash Flow 0 $250,000 1 70,000 2 90,000 3 110,000 4 120,000

What is the projects modified internal rate of return (MIRR)