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Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitabil

ID: 2455260 • Letter: U

Question


Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.

Project 1
Initial Invest= $490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.

Project 2
Initial Invest= $970,000, 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= $820,000, 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 $1,100,000 what are your recommendations for the three projects in the above problem. Explain.  

Assuming a budget of $2,200,000 what are your recommendations for the above problem? Explain.

Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.

Project 1
Initial Invest= $490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.

Project 2
Initial Invest= $970,000, 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= $820,000, 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 $1,100,000 what are your recommendations for the three projects in the above problem. Explain.  

Assuming a budget of $2,200,000 what are your recommendations for the above problem? Explain.

Explanation / Answer

Project 1 Year Cash Flow Discount Net Flow 0 -490000 1 -490000 1 100000 0.956938 95693.78 2 100000 0.91573 91573 3 100000 0.876297 87629.66 4 100000 0.838561 83856.13 5 100000 0.802451 80245.1 6 50000 0.767896 38394.79 7 50000 0.734828 36741.42 8 50000 0.703185 35159.26 9 50000 0.672904 33645.22 10 50000 0.643928 32196.38 NPV 125134.7 Profitability Index = cash Inflows/ cash Outflows = 615134/490000 1.2553755 Project 2 Year Cash Flow Discount Net Flow 0 -970000 1 -970000 1 400000 0.956938 382775.1 2 400000 0.91573 366292 3 400000 0.876297 350518.6 4 0 0.838561 0 5 0 0.802451 0 6 0 0.767896 0 7 0 0.734828 0 8 250000 0.703185 175796.3 9 250000 0.672904 168226.1 10 250000 0.643928 160981.9 NPV 634590.1 Profitability Index = cash Inflows/ cash Outflows = 1604590/970000 1.6542165

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