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Homework answers / question archive / Company received the approval to start no more than two projects in the current calendar year

Company received the approval to start no more than two projects in the current calendar year

Finance

Company received the approval to start no more than two projects in the current calendar year. Three different projects were recommended, each of which requires an investment of 1,000 to be made at the beginning of year 1 The cash flows for each of the three projects are as follows: End of year Project A Project Project 200 SOD 400 500 300 250 1200 175 100 200 1 300 150 300 500 700 The company uses an annual effective interest rate of to discount its cash flows Determine which combination of projects the company should Projects Project O Project C Project Band Project A and

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      i ii iii iv v=i*iv vi=ii*iv vii=iii*iv  
              Present value    
    Year Project A Project B Project C PVIF @ 5% Project A Project B Project C  
    0 -1000 -1000 -1000 1           (1,000)           (1,000)             (1,000)  
    1 200 500 400 0.952381                190                476                  381  
    2 500 300 250 0.907029                454                272                  227  
    3 200 -175 100 0.863838                173              (151)                    86  
    4 -300 150 -200 0.822702              (247)                123                (165)  
    5 300 600 700 0.783526                235                470                  548  
    NPV=                      (195)                191                    78  
                     
    We can see that project B and C has positive NPV          
                     
    ans = Project B and C              
                     
                     
                     
                     
                     
                     

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