1. Payback Analysis

Two new wind-farm tower projects are proposed for a small company

that installs them in south western Pennsylvania. Project A will

cost \$250,000 to complete and is expected to have an annual net

cash flow of \$75,000. Project B will cost \$150,000 to complete and

should generate annual net cash flows of \$52,000. As a small

company, the owner and senior management team are very concerned

Use the payback period method and determine which project is better

from a cash flow standpoint.

Show your work and include any formulas used to calculate PP.

2. Net Present Value

A recent project nominated for consideration at your company has
a four-year cash flow of \$20,000; \$25,000; \$30,000; and \$50,000.
The cost of the project is \$75,000.

a. If the required rate of return is 20%, conduct a discounted cash flow

calculation to determine the NPV.

b. What is the benefit-cost ratio for the project?

c. What would the
NPV of the above project be if the inflation rate was expected to
be 4% in each of the next four years?

You will be assessed on the correctness of your calculations
(40 points) and on presenting your work and results in a
professional manner (10 points)