Part II. Problems Please show your calculations for every problem. You will rece

Question

Part II. Problems Please show your calculations for every problem. You will receive zero point if you just give the answer. (20 points) i.crawfish Kitchen Inc. is planning to invest in one of three mutually exclusive projects. Projected cash flows for these ventures are as follows: Plan C Plan A Plan B Initial outlay $3,500 Initial outlay $6,000 Initial Outlay -$3,600 Cash Flow: Yr 1 $-0. Cash Flow Yr 1 $4.000 Cash Flow. Yr 1 $2,000 Yr 2- 3,000 Yr 2 -0 Yr 3- 2,000 Yr 3- 2,000 Yr 4 2,000 $7,000 Yr 5 -0- Yr 5- 2,000 which project is the most profitable according to the NPv Criteria if the discount rate for the firm is 14%? a. Plan A b. Plan B c. Plan C

Explanation / Answer

Plan A->

NPV = -3600 + (7000/1.145) = 35.58

Plan B->

NPV = -6000+(4000/1.14) +(3000/1.142) +(2000/1.143) = 5421.9

Plan C ->

NPV = -3500 +(2000/1.14) +(2000/1.143) +(2000/1.144) +(2000/1.145) = $8971.8

Plan C is the best

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