Q1.

Suppose a firm is considering investing in a project with the cash flows shown below,
that the required rate of return on projects of this risk class is 7 percent, and that the
maximum allowable payback and discounted payback statistics for the project are 3.5 and
4.5 years, respectively.

Time 0 1 2 3 4 5 6

$1,67
Cash flow $5,000 $1,270 $2,470 $1,590 $1,470 $1,270
0
Use the payback decision rule to evaluate this project. (Round the answer to 2 decimal
places.) Should it be accepted or rejected?

Q2. Quary Company is considering an investment in machinery with the following

information.

Initial investment - $209,000

Useful life - 9 years

Salvage value - $20,000

Expected sales per year - 10,450 units

Materials, labor, and overhead (except depreciation) - $47,025

Depreciation-Machinery - 21,000

Selling, general, and administrative expenses - 5,225

Selling price per unit - $10

A) Compute the investment's annual income and annual net cash flow.

B) Compute the investment's payback period.

Q3. An investment project provides cash inflows of $1,150 per year for eight years. What is
the project payback period if the initial cost is $3,850?

Compute the payback period statistic for Project X and recommend whether the firm should
accept or reject the project with the cash flows below if the maximum allowable payback is
four years.

Year 0 - -$1,450

Year 1 - $250

Year 2 - $380

Year 3 - $620

Year 4 - $1,000

Year 5 - $100

Q4. Consider a project with the cash flows listed in the table below. What is the project's
payback period?
 Year Cash Flow

0 -8,500

1 1,400

2 1,300

3 1,200

4 1,300

5 1,500

6 1,800

7 2,200

8 2,700

Q5. A company is determining whether to invest in a project of limited duration. The cash
flows that correspond to the project are as follows:

Annual Cash Flows

Year
$200,000
1

Year
$200,000
2

Year
$200,000
3

Year
$200,000
4

Year
$200,000
5
The payback period has been determined to be three and one-half years.

What is the amount of the initial investment?

Q6. The payback period is 3.5 years. The net investment is $550,000 at the beginning of the
investment. Cash flows are $200,000 for Year 1, $100,000 for Year 2, $100,000 for Year 4,
and $50,000 for Year 5.

Calculate the missing Year 3 cash flow based on the following information.

Q7. A project has an initial cost of $60,000, expected net cash inflows of $10,000 per year for
8 years, and a cost of capital of 12%. What is the project's discounted payback period? Show
your work.