1. The Short-Line Railroad is considering a $200,000investment in either of two companies. The cash flows are asfollows:

Year	Electric Co.			Water Works
1	$	100,000		$	50,000
2		50,000			50,000
3		50,000			100,000
4 – 10		25,000			25,000

a. Compute the payback period for both companies.(Round your answers to 1 decimal place.)
  

b. Which of the investments is superior from theinformation provided?
  

	Electric Co.
	Water Works

2. Aerospace Dynamics will invest $198,000 in a projectthat will produce the following cash flows. The cost of capital is9 percent. (Note that the fourth year’s cash flow is negative.) UseAppendix B for an approximate answer but calculate your finalanswer using the formula and financial calculatormethods.

  

Year	Cash Flow
1		$	48,000
2			60,000
3			54,000
4			(51,000	)
5			155,000

a. What is the net present value of theproject? (Negative amount should be indicated by a minussign. Do not round intermediate calculations and round your answerto 2 decimal places.)
  

  
b. Should the project be undertaken?
  

	Yes
	No

3. The Suboptimal Glass Company uses a process ofcapital rationing in its decision making. The firm’s cost ofcapital is 10 percent. It will only invest $86,000 this year. Ithas determined the internal rate of return for each of thefollowing projects.

Project	Project Size			Internal Rate of Return
A	$	11,500			18	%
B		31,500			19
C		26,500			16
D		11,500			13
E		31,500			14
F		21,500			12
G		16,500			21

a. Pick out the projects that the firm shouldaccept. (You may select more than one answer. Single clickthe box with the question mark to produce a check mark for acorrect answer and double click the box with the question mark toempty the box for a wrong answer.)
  

	Project E
	Project D
	Project A
	Project B
	Project G
	Project F
	Project C

b. If Projects B and G are mutually exclusive,which projects would you accept in spending the $86,000?(You may select more than one answer. Single click the boxwith the question mark to produce a check mark for a correct answerand double click the box with the question mark to empty the boxfor a wrong answer.)

	Project E
	Project B
	Project A
	Project D
	Project G
	Project F
	Project C