Red Rider Company is considering three investment opportunities having cash flow

Question

Red Rider Company is considering three investment opportunities having cash flows as described below: Project A Cash investment now (one time)$10,000 Cash inflow at the end of -4 years (one time)15.000 Cash inflow at the end of 7 years (one time)20.000 Project B Cash investment now (one time)Si5.000 Annual cash outflow foe 4 years (4 payments)6.000 Additional cash inflow at the end of 4 years (4 receipts) 15.000 Project C Cash investment now (one time)SI 5.000 Annual cash inflow for 4 years (4 receipts)15.000 Cash outflow at the end of 3 yean (one time)3.000 Additional cash inflow at the end of 4 years (one time) 15,000 Red Rider Company uses 11% required rate of return to evaluate investments. Required: Compute the net present value of each project. Baaed on the projects profitability index, rank the projects in terms of acceptance

Explanation / Answer

Project A PVF @ 11% Present Value 0 -10000 1 -10000 4 15000 0.6587 9880.96 7 20000 0.4817 9633.17 PI 1.95 2 NPV 9514.13 Project B 0 -15000 1 -15000 1 9000 0.9009 8108.11 2 9000 0.8116 7304.60 3 9000 0.7312 6580.72 PI 1.86 3 4 9000 0.6587 5928.58 NPV 12922.01 Project C 0 -15000 1 -15000 1 15000 0.9009 13513.51 2 15000 0.8116 12174.34 PI 3.61 1 3 12000 0.7312 8774.30 4 30000 0.6587 19761.93 NPV 39224.08 PI = PV of FCF/Initial Investment

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