its cost of capital at 9 %. The cash inflows associated with the two projects are shown in the following table .
Cash inflows ( CFt )
Year |
Project A |
Project B |
1 |
$ 45,000 |
$ 75,000 |
2 |
45,000 |
60,000 |
3 |
45,000 |
30,000 |
4 |
45,000 |
30,000 |
5 |
45,000 |
30,000 |
6 |
45,000 |
30,000 |
a . Calculate the payback period for each project . b . Calculate the NPV of each project at 0 %. c . Calculate the NPV of each project at 9 %. d . Derive the IRR of each project . e . Rank the projects by each of the techniques used . Make and justify a recommendation . f . Go back one more time and calculate the NPV of each project using a cost of capital of 12 %. Does the ranking of the two projects change compared to your answer in part e ? Why ?
P11 – 1 Classification of expenditures Given the following list of outlays , indicate whether each is normally considered a capital expenditure or an operating expenditure . Explain your answers . LG 2 a . An initial lease payment of $ 5,000 for electronic point-of-sale cash register systems b . An outlay of $ 20,000 to purchase patent rights from an inventor c . An outlay of $ 80,000 for a major research and development program d . An $ 80,000 investment in a portfolio of marketable securities e . A $ 300 outlay for an office machine f . An outlay of $ 2,000 for a new machine tool g . An outlay of $ 240,000 for a new building h . An outlay of $ 1,000 for a marketing research report
P11 – 4 Sunk costs and opportunity costs Masters Golf Products , Inc ., spent 3 years and $ 1,000,000 to develop its new line of club