Question 1-7: Assume two mutually exclusive investments have the following cash flows:
Project
Project A
Project B Year 0
-$200
-$300 Year 1
$100
$150 Year 2
$100
$125 Year 3
$100
$150 Complete the following table assuming that the cost of capital is 10%: (Show all
calculations/work for solutions.) Project A Project B Under this
Investment Criteria
which project would
you choose?
(Enter A or B) NPV
IRR
Payback
MIRR
Profitability Index
Based on your answers in the table above, which project would you finally choose and why?
(Show all calculations/work for solutions.)
Question 1-8: The president of Accu – Copy has asked you to evaluate the proposed acquisition of a new copier.
The copier equipment is expected to cost $30,000 and will be depreciated in a straight-line
manner for the three years of the asset’s life after which it will be worthless. Use of the
equipment will require an increase in net working capital (additional paper sizes which can be
accommodated by the new copier) of $4,000. Increased sales from the Finance dept. looking for
a working copier are expected to be $20,000 per year with operating costs (excluding
depreciation) of $5,000 per year.
– Calculate the initial outlay and net cash flows for years 1-3.
In other words, show the net cash flows for t=0, t=1, t=2, and t=3. Speedy Copy’s
marginal tax rate is 40 percent. Question 1-9: Hershey Candy Products has an inventory turnover of six times per year, a receivables turnover
of 10 times, and a payables turnover of 12 times.
– What is Hershey’s inventory conversion period, the receivables collection period, and its
payables deferral period? What is its cash conversion cycle? Explain what this means to
its managers and why is this important?
