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13-1 NPV with Normal Cash Flows. Compute the NPV for Project M and accept or reject the project with the cash flows shown below if the appropriate cost of capital is 8 percent. (LG13-3)

12-2 PV of Depreciation Tax Benefits. Your company is considering a new project that will require $1 million of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $150,000 using straight-line depreciation. The cost of capital is 13 percent, and the firm’s tax rate is 34 percent. Estimate the present value of the tax benefits from depreciation. (LG12-4)

13-3 NPV with Non-Normal Cash Flows. Compute the NPV statistic for Project U and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent. (LG13-3)

13-4 NPV with Non-Normal Cash Flows. Compute the NPV statistic for Project K and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 6 percent. (LG13-3)

13-5 Payback. Compute the payback statistic for Project B and decide whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 12 percent and the maximum allowable payback is 3 years. (LG13-2)

13-6 Payback. Compute the payback statistic for Project A and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 8 percent and the maximum allowable payback is 4 years. (LG13-2)

13-7 Discounted Payback. Compute the discounted payback statistic for Project C and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 8 percent and the maximum allowable discounted payback is 3 years. (LG13-2)

13-8 Discounted Payback. Compute the discounted payback statistic for Project D and recommend whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 12 percent and the maximum allowable discounted payback is 4 years. (LG13-2)

13-13 PI. Compute the PI statistic for Project Z and advise the firm whether to accept or reject the project with the cash flows shown below if the appropriate cost of capital is 8 percent. (LG 13-6)

13-14 PI. Compute the PI statistic for Project Q and indicate whether you would accept or reject the project with the cash flows shown below if the appropriate cost of capital is 12 percent. (LG 13-6)

Use this information to answer the next four questions. If a particular decision method should not be used, indicate why.

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.

13-17 Payback. Use the payback decision rule to evaluate this project; should it be accepted or rejected? (LG13-2)

13-19 IRR. Use the IRR decision rule to evaluate this project; should it be accepted or rejected? (LG13-4)

13-21 NPV. Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

(LG13-3)

13-22 PI. Use the PI decision rule to evaluate this project; should it be accepted or rejected?

(LG13-6)

Use this information to answer the next question. If you should not use a particular decision technique, indicate why.

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3 and 3.5 years, respectively.

13-28 PI. Use the PI decision rule to evaluate this project; should it be accepted or rejected?

(LG13-6)