Compute nominal payback period, net present value

Reference no: EM1373284

Q1. A machine cost $4,000. It lasts two years and has no salvage value [that is, it has no value at the end of those two years of use]. In every year, it produces $ 2400 in income. Should the company invest in machine if the interest rate is 10 percent? Should the companyinvest in the machine if the interest rate is 20%? Why? What if the machine's scrap value was $350?
Q2. Wiley Coyote has been retained to analyze two new projects for the Acme Company. Each project has a cost of $10,000, and the cost of capital for both projects is 12%. The projects net cash flows are as follows:
Year Project 1 Project 2
0 (10,000) (10,000)
1 6,500 3,500
2 3,000 3,500
3 3,000 3,500
4 1,000 3,500

a) Compute each project's nominal payback period, net present value (NPV), and internal rate of return
b) Should both projects be accepted if they are interdependent?
c) Which project should be accepted if they are mutually exclusive?
d) Why does a conflict exist between NPV and IRR rankings?

Qu3. In the 1styear, Bubba's Pork Rind factory sold $ 100,000. A mere thirteen years later, Bubba sold $ 475,000. What is the compound growth rate? If Bubba's sales growth continued unabated, what would Bubba's sales be after the next 13 years?
If, in the above, the initial period had been 10 years, what would the compound growth rate have been then? What would you expect the sales to be after 16 more years?

Reference no: EM1373284

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