Question

1. The​ Bar-None Manufacturing Co. manufactures fence panels used in cattle feed lots throughout the Midwest. ​ Bar-None's management is considering three investment projects for next year but​ doesn't want to make any investment that requires more than three years to recover the​ firm's initial investment. The cash flows for the three projects​ (Project A, Project​ B, and Project​ C) are as​ follows:  

0	​$(900)	​ $(9,800​)	​ $(5,500​)
1	550	4,000	800
2	225	3,500	800
3	180	3,500	3,500
4	60	3,500	3,500
5	490	3,500	3,500

a.  Given​ Bar-None's three-year payback​ period, which of the projects will qualify for​ acceptance?

b.  Rank the three projects using their payback period. Which project looks the best using this​ criterion? Do you agree with this​ ranking? Why or why​ not?

c.  If​ Bar-None uses a discount rate of 9.5 percent to analyze​ projects, what is the discounted payback period for each of the three​ projects? If the firm still maintains its​ three-year payback policy for the discounted​ payback, which projects should the firm undertake?

2.  You are considering a project with an initial cash outlay of ​$84,000 and expected cash flows of $24,360

at the end of each year for six years. The discount rate for this project is 10.1 percent

a.  What are the​ project's payback and discounted payback​ periods?

b.  What is the​ project's NPV?

c.  What is the​ project's PI?

d.  What is the​ project's IRR?

Answer 1

1)