1). a. A company is building a new plant on the outskirts of Smallesville. The town has offered to donate the land, and as part of the agreement, the company will have to build an access road from the main highway to the plant. How will the project of building of the road be classified in capital budgeting analysis?
b. Sykes, Inc., is considering two projects: a plant expansion and a new computer system for the firm’s production department. Classify these projects as independent, mutually exclusive, or contingent projects and explain your reasoning.
c. Your firm is currently considering the upgrading of the operating systems of all the firm’s computers. One alternative is to choose the Linux operating system that a local computer services firm has offered to install and maintain. Microsoft has also put in a bid to install the new Windows Vista operating system for businesses. What types of projects are these?
2) Capitol Corp. management is expecting a project to generate after-tax income of $63,435 in each of the next three years. The average book value of the project’s equipment over that period will be $212,500. If the firm’s acceptance decision on any project is based on an ARR of 37.5 percent.
3) Identify the weaknesses of the payback period method.