you are a manager FINANCE Week 5 Homework Question 3 (of K 3. 5,00 pons 5.00 pol

Question

you are a manager FINANCE Week 5 Homework Question 3 (of K 3. 5,00 pons 5.00 polints You are a manager with an investment budget of $8 milion. You may invest in the following projects Investment and cash-flow figures are in millions of dollars DiscountAnnualProject 10 12 3 1.5 12 b. Which projects should the manager choose? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.) Project A Project B Project c' Project D Project E C. c. Which projects will be chosen if there is no capital rationing? O A O c Al of the above

Explanation / Answer

Project A                  Amounts in million year Net cash flow PV @ 10% Present Value 0 -$3.00 1 -$3.000 1 $1.00 0.909 $0.909 2 $1.00 0.826 $0.826 3 $1.00 0.751 $0.751 4 $1.00 0.683 $0.683 5 $1.00 0.621 $0.621 NPV $0.791 IRR 20% Project B                  Amounts in million year Net cash flow PV @ 12% Present Value 0 -$4.00 1 -$4.000 1 $1.00 0.893 $0.893 2 $1.00 0.797 $0.797 3 $1.00 0.712 $0.712 4 $1.00 0.636 $0.636 5 $1.00 0.567 $0.567 6 $1.00 0.507 $0.507 7 $1.00 0.452 $0.452 8 $1.00 0.404 $0.404 NPV $0.968 IRR 19% Project C                  Amounts in million year Net cash flow PV @ 8% Present Value 0 -$5.00 1 -$5.000 1 $2.00 0.926 $1.852 2 $2.00 0.857 $1.715 3 $2.00 0.794 $1.588 4 $2.00 0.735 $1.470 NPV $1.624 IRR 22% Project D                  Amounts in million year Net cash flow PV @ 8% Present Value 0 -$3.00 1 -$3.000 1 $1.50 0.926 $1.389 2 $1.50 0.857 $1.286 3 $1.50 0.794 $1.191 NPV $0.866 IRR 23% Project E                  Amounts in million year Net cash flow PV @ 12% Present Value 0 -$3.00 1 -$3.000 1 $1.00 0.893 $0.893 2 $1.00 0.797 $0.797 3 $1.00 0.712 $0.712 4 $1.00 0.636 $0.636 5 $1.00 0.567 $0.567 6 $1.00 0.507 $0.507 NPV $1.111 IRR 24% a. Project C and E would be selected as their NPV are the highest among other projects. b. Project C would be selected because of its highest NPV.

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