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Question

(Part 1)
Using a 5% discount rate, calculate the Net Present Value, Payback,Profitability Index, and IRR for each of the investment projectsbelow (note, the inflows are for each year). Based on yourcalculations rank the projects and support you answer.

Project 1
Initial Invest= $500,000, Cash inflows of $100,000 for years 1-5and $50,000 for years 6-10.

Project 2
Initial Invest= $1,000,000, Cash inflows of $400,000 for years 1-3,$0 for years 4-7 and $250,000 for years 8-10.

Project 3
Initial Invest= $800,000, Cash inflows of $300,000 for years 1-5,$0 for years 6-9 and $100,000 for year 10.

(Part 2)
Assuming a budget of $1,200,000 what are your recommendations forthe three projects in the above problem. Explain.

Assuming a budget of $2,000,000 what are your recommendations forthe above problem? Explain.

Solution

xxxxx.xxxxxxx 1

NPV=$102560.6

pay xxxx=xxxxxxxxxxxxxy index=1.20

IRR=9.82%

Project xxxx=$xxxxxx.xxxxy xxxx=x.xxxxxxxxxxxxxy xxxxx=x.xxxxx=xx.xx%xxxxxxx 3

NPV=$560234.33

pay xxxx=x.xxxxxxxxxxxxxy index=1.70

IRR=26.03

Rank x =xxxxxxxxxxxx x =project xxxxx 3= xxxxxxx xxx xxxx project x wnhich xxxx xxxxxxx xxx and xxxx IRR.

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