Project Alpha requires an initial outlay of $ 35,000
7. Project Alpha requires an initial outlay of $ 35,000 and results in a single cash inflow of $ 56,367.50 after five years.
a. If the cost of capital is 8%, what are Alphas NPV and PI? Is the project accept-able under each of these techniques?
b. What is project Alphas IRR? Is it acceptable under IRR?
c. What are Alphas NPV and PI if the cost of capital is 12%? Is the project acceptable under that condition?
d. What is Alphas payback period? Does payback make much sense for a project like Alpha? Why or why not?
8. The Sampson Company is considering a project that requires an initial outlay of $ 75,000 and produces cash inflows of $ 20,806 each year for five years. Sampsons cost of capital is 10%.
a. Calculate the projects payback period by making a single division rather than accumulating cash inflows. Why is this possible in this case?
b. Calculate the projects IRR, recognizing the fact that the cash inflows are an annuity. Is the project acceptable? Did your calculation in this part result in any number( s) that were also calculated in part ( a)? What is it about this prob-lem that creates this similarity? Will this always happen in such cases?
c. What is the projects NPV? Is the project acceptable according to NPV rules?
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