Question

PLEASE ATTACH EXCEL FILE!!!

Scenario for Homework #1 . Let's say that a company has purchased a plot of land (approximately 15 acres) in an affluent suburb. They must now decide what to build on that land. The three options they are considering are listed in the table below along with the forecasted cash flows for each option. Complete the decision matrix on the next slide to determine which would be the best option (choose only one). Write a sentence or two explaining your answer and why you selected that project. • Hint: Use Excel to do your calculations of NPV and PP. Turn in your Excel file with explanation to the drop-box for HW #1. (20 points) Cash Flows ($000) Initial Outlay Net Inflows per year Number of Years of inflows Apartment Building (100 units) $750 +$100 20 Office Park (40 8-room offices) $360 +$60 2 0 Shopping Center (8 stores) -$500 +$125 20

Answer 1

Cash Flows ($ 000)	Apartment Building (100 units)	Office Park (40 8-room offices)	Shopping Center ( 8 stores)
Initial Outlay	-$750	-$360	-$500
Net Inflows per year	$100	$60	$125
Number of Years of inflows	20	20	20
Rate of Return	6%	6%	6%
PV Factor= ((1-(1+r)^-n)/r	11.47	11.47	11.47
PV of Cash Inflow	$1,147	$688	$1,434
NPV	$397	$328	$934
Payback Period	7.50	6.00	4.00
Note-
Payback Period = Initial Cash Outlay/Net Inflow per year
	Weight	Apartment Building (100 units)	Office Park (40 8-room offices)	Shopping Center ( 8 stores)
Alignment with Strategic Goals	10	10.00	10.00	10.00
NPV	9	3.97	3.28	9.34
Payback Period	5	2.50	4.00	6.00
Low Risk	5	8.00	8.00	8.00
TOTAL	29	24.47	25.282	33.34
Based on the data available through decision matrix, we will choose the third option,
i.e., build a shopping center on the land since the NPV of the project is highest and
it has the shortest payback period and hence the project has received the highest
weightage on the decision matrix.