Using a 3.8% discount rate, calculate the Net Present Value, Payback, Profitabil

Question

Using a 3.8% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.

Project 1
Initial Invest= $520,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.

Project 2
Initial Invest= $1,050,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10.

Project 3
Initial Invest= $820,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year

(Part 2)
Assuming a budget of $1,300,000 what are your recommendations for the three projects in the above problem. Explain.

Assuming a budget of $2,100,000 what are your recommendations for the above problem? Explain.

Explanation / Answer

1. NPV 113,460.11 IRR 8.76 Payback 5.4years PI 1.22

2. NPV 600,660.54 IRR 17.64 Payback 2.625 years PI 1.57

3. NPV 591,953.22 IRR 24.86 Payback 2.733 years PI 1.72

Assuming 1,300,000 just do 2 because you can only do one and it has the largest NPV.

Budget of 2,100,000 do 2 and 3 for the largest combined NPV.

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