E101 Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of $25,000; project Helium requires an initial outlay of $35,000. Using the expected cash inflows given for each project in the following table, calculate each project’s payback period. Which project meets Elysian’s standards?
Year  Expected cash inflows  
Hydrogen  Helium  
1 
$6,000 
$7,000 
2 
6,000 
7,000 
3 
8,000 
8,000 
4 
4,000 
5,000 
5 
3,500 
5,000 
6 
2,000 
4,000 
E1O2 Herky Foods is considering acquisition of a new wrapping machine. The initial investment is estimated at $1.25 million, and the machine will have a 5year life with no salvage value. Using a 6% discount rate, determine the net present value (NPV) of the machine given its expected operating cash inflows shown in the following table. Based on the project’s NPV, should Herky make this investment?
Year  Cash inflow 
1 
$400,000 
2 
375,000 
3 
300,000 
4 
350,000 
5 
200,000 
E103 Axis Corp. is considering investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $45,000 and generate cash inflows of $20,000 per year for the next 3 years. Project Thompson involves replacement of the existing system; it will cost $275,000 and generate cash inflows of $60,000 per year for 6 years. Using an 8% cost of capital, calculate each project’s NPV, and make a recommendation based on your findings.
E104 Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for each of the following projects and recommend the best project based on this measure. Project TShirt requires an initial investment of $15,000 and generates cash inflows of $8,000 per year for 4 years. Project Board Shorts requires an initial investment of $25,000 and produces cash inflows of $12,000 per year for 5 years.
E105 Cooper Electronics uses NPV profiles to visually evaluate competing projects. Key data for the two projects under consideration are given in the following table. Using these data, graph, on the same set of axes, the NPV profiles for each project using discount rates of 0%, 8%, and the IRR.
Initial investment 
Terra 
Firma 
30000 
25000 

Year 
Operating cash inflows 

1 
7000 
6000 
2 
10000 
9000 
3 
12000 
9000 
4 
10000 
8000

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