Finance assignment question 4
Assignment: Answer the following question
- Calculate the NPV for the following projects with a discount rate of 12%:
- Project 1 costs $100,000 and earns $50,000 each year for three years.
- Project 2 costs $200,000 and earns $150,000 in the first year, and then $75,000 for each of the next two years.
- Project 3 costs $25,000 and earns $20,000 each year for three years.
The projects are mutually exclusive.
- Calculate the NPV of all 3 projects. Which one should we accept?
- Calculate the IRR for the 3 projects. Which has the highest IRR? If the hurdle rate 10%, which one will you accept?
- Calculate also the PI for each of the 3 projects. Which one should be accepted?
- Briarcliff Stove Company is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of $700,000 at time 0. After-tax cash inflows of $250,000 are expected in year 1 and 2, $300,000 in year 3, $350,000 in year 4, and $400,000 each year thereafter through year 8.
- If the required rate of return is 15 percent, what is the net present value of the project? Is it acceptable?
- What is its internal rate of return?
- What would be the case if the required rate of return was 10 percent?
- What is the project’s payback period?
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