PAYBACK, ACCOUNTING RATE OF RETURN, PRESENT VALUE, NET PRESENT VALUE, INTERNAL RATE OF RETURN All four parts are independent of all other parts. Assume that all cash flows are after-tax cash flows.
a. Randy Willis is considering investing in one of the following two projects. Either project will require an investment of $10,000. The expected cash flows for the two projects follow. Assume that each project is depreciable.
b. Wilma Golding is retiring and has the option to take her retirement as a lump sum of $225,000 or to receive $24,000 per year for 20 years. Wilma’s required rate of return is 8 percent.
c. David Booth is interested in investing in some tools and equipment so that he can do independent drywalling. The cost of the tools and equipment is $20,000. He estimates that the return from owning his own equipment will be $6,000 per year. The tools and equipment will last six years.
d. Patsy Folson is evaluating what appears to be an attractive opportunity. She is currently the owner of a small manufacturing company and has the opportunity to acquire another small company’s equipment that would provide production of a part currently purchased externally. She estimates that the savings from internal production will be $25,000 per year. She estimates that the equipment will last 10 years. The owner is asking$130,400 for the equipment. Her company’s cost of capital is 10 percent.
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