A company is deciding which projects to invest in. They have received the financ

Question

A company is deciding which projects to invest in. They have received the financial analyses shown below regarding the projects. If you were making the decision to invest in only one project, which one would it be? Assume that the WACC for the company is 14% (State the pros and cons of your decision relative to the others) (8 points) Project 1 Project 2 Project 3 Payback Period (years) 1.8 3.5 0.6 Net Present Value (NPV) $1,200,000 $3,900,000 $20,000 Internal Rate of Return (IRR) 26.8% 15.3% 71.5% Modified Internal Rate of Return (MIRR) 21.1% 14.5% 56.0%

Explanation / Answer

payback period, IRR, MIRR of project 3 clearly reveals that project 3 should be chosen.

only npv of Project 2 is highest but other measure of capital budgeting must also be taken into account to evaluate the project and hence project 3 should be chosen

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