Maxwell software, inc., has the following mutually exclusive projects.

Maxwell Software, Inc., has the following mutually exclusive projects.

Year

Project A

Project B

0

–$25,000

–$28,000

1

14,500

15,500

2

11,000

12,000

3

3,400

11,000

a-1.

Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

Payback period

Project A

years

Project B

years

a-2.

Which, if either, of these projects should be chosen?

Project A

Project B

Both projects

Neither project

b-1.

What is the NPV for each project if the appropriate discount rate is 17 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

NPV

Project A

$

Project B

$

b-2.

Which, if either, of these projects should be chosen if the appropriate discount rate is 17 percent?

Project A

Project B

Both projects

Neither project

Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $2,170,000 in annual sales, with costs of $865,000. The tax rate is 35 percent and the required return is 9 percent.

What is the project’s NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV

$

The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 40 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project.

Year 0

Year 1

Year 2

Year 3

Year 4

Investment

$

26,000

Sales revenue

$

13,500

$

14,000

$

14,500

$

11,500

Operating costs

2,900

3,000

3,100

2,300

Depreciation

6,500

6,500

6,500

6,500

Net working capital spending

320

370

420

320

?

a.

Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.)

Year 1

Year 2

Year 3

Year 4

Net income

$

$

$

$

b.

Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.)

Year 0

Year 1

Year 2

Year 3

Year 4

Cash flow

$

$

$

$

$

c.

Suppose the appropriate discount rate is 11 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV

$