A company is considering a project for investment which will cost $70,000 now and another $10,000 in year five.

The company has a cost of capital of 8%. The project has the following discounted cash flows:

YearDiscounted Cash Flows

$

123,148

230,007

319,846

414,701

What is its discounted payback period in years and months (to the nearest month)?

A business holds an inventory item with an economic order quantity of 800 units. Supply lead times and usage rates for the item are as follows:

MaximumAverageMinimum

Supply lead time20 days12 days6 days

Daily usage25 units20 units10 units

The business wishes to avoid any risk of running out of this inventory item.

What is the size of the buffer inventory (using average figures) and the maximum level of inventory?

A business is considering various investment projects, with each expected to have an initial cash outflow followed by positive cash inflows over the rest of its life. The operations director has stated that the net present value and internal rate of return methods will, if correctly applied to each individual project, always give projects with the same characteristics:

1. Accept or reject decision for individual projects

2. Priority ranking for those projects that are acceptable

Which of the following combinations (true/false) is correct?