Question

Ajax Company has capital alternatives available for 2021 that total investments of $ 1,250,000 The capital budget for 2021 is only $ 750,000 Using the capital budgeting tools from chapter 10 and making appropriate use of Excel, rate each investment and pick the investments that should be undertaken. The hurdle rate is 7.75% B D Investment Investment Alternative Amount A 210,000 275,000 с 300,000 165,000 E 300,000 1,250,000 Alternative A has cash flows of $30,500 for ten years. Alternative B has cash flows as follows: Year 1 - $60,000, year 2 - $80,000, year 3 - $62,000, year 4 - $70,000, and year 5 - $72,000. Alternative C has cash flows as follows: Year 1 - $50,000, years 2-4 - $60,000/year, year 5 - $80,000, and year 6 - $70,000. Alternative D has cash flows as follows: Year 1 - $40,000, year 2 - $50,000, year 3 - $60,000, year 4 - $50,000, and year 5 - $75,000. Alternative E has cash flows as follows: Year 1 - $100,000, year 2 - $100,000, year 3 - $120,000, year 4 - $150,000, and year 5 - $28,000.

Rank acceptable alternatives, show your computation of NPV and IRR.

Rank alternatives A-E assuming the hurdle rate has changed to

9.25%

Answer 1

Project-A Analysis of Net present value of new Investment Particulars Year Cashflow Present [email protected]% p.a. NPV 1.0000 $ Initial Investment 0 $ (210,000.00) Annual cashflow 1 $ 30,500.00 Annual cashflow 2 $ 30,500.00 Annual cashflow 3 $ 30,500.00 Annual cashflow 4 $ 30,500.00 Annual cashflow 5 $ 30,500.00 Annual cashflow 6 $ 30,500.00 Annual cashflow 7 $ 30,500.00 Annual cashflow 8 $ 30,500.00 Annual cashflow 9 S 30,500.00 Annual cashflow 10 $ 30,500.00 Net present value it will have a Negative NPV of $(3015) 0.9281 0.8613 0.7994 0.7419 0.6885 0.6390 0.5930 0.5504 0.5108 0.4741 $ $ $ $ $ $ $ $ $ $ $ (210,000) 28,306 26,270 24,381 22,627 21,000 19,489 18,088 16,787 15,579 14,459 (3,015) Project-B Analysis of Net present value of new Investment Particulars Year Cashflow Present [email protected]% p.a. Initial Investment 0 $ (275,000.00) 1.0000 Annual cashflow 1 $ 60,000.00 0.9281 Annual cashflow 2 $ 80,000.00 0.8613 Annual cashflow 3 $ 62,000.00 0.7994 Annual cashflow 4 $ 70,000.00 0.7419 Annual cashflow 5 $ 72,000.00 0.6885 Net present value it will have a positive NPV of $ 656 $ $ $ $ $ $ $ NPV (275,000) 55,684 68,906 49,561 51,931 49,573 656 Project-C Analysis of Net present value of new Investment Particulars Year Cashflow Present [email protected]% p.a. Initial Investment 0 $ 300.000.00) 1.0000 Annual cashflow 1 $ 50,000.00 0.9281 Annual cashflow 2 $ 60,000.00 0.8613 Annual cashflow 3 $ 60,000.00 0.7994 Annual cashflow 4 $ 60,000.00 0.7419 Annual cashflow $ 80,000.00 0.6885 Annual cashflow 6 $ 70,000.00 0.6390 Net present value it will have a Negative NPV of $ (54361) $ $ $ $ $ $ $ $ NPV (300,000) 46,404 51,679 47,962 44,513 55,081 44,730 (54,361) 5 Project-D Analysis of Net present value of new Investment Particulars Year Cashflow Present [email protected]% p.a. Initial Investment 0 $ (165,000.00) 1.0000 $ Annual cashflow 1 $ 40,000.00 0.9281 $ Annual cashflow 2 $ 50,000.00 0.8613 $ Annual cashflow 3 $ 60,000.00 0.7994 $ Annual cashflow 4 $ 50,000.00 0.7419 $ Annual cashflow 5 $ 75,000.00 0.6885 $ Net present value $ it will have a positive NPV of $ 51884 NPV (165,000) 37,123 43,066 47,962 37,094 51,639 51,884 Project-E Analysis of Net present value of new Investment Particulars Year Cashflow Present [email protected]% p.a. Initial Investment 0 $ (300,000.00) 1.0000 $ Annual cashflow 1 $ 100,000.00 0.9281 $ Annual cashflow 2 $ 100,000.00 0.8613 $ Annual cashflow 3 $ 120,000.00 0.7994 $ Annual cashflow 4 $ 150,000.00 0.7419 $ Annual cashflow 5 $ 28.000.00 0.6885 $ Net present value $ it will have a positive NPV of $ 105424 NPV (300,000) 92,807 86,132 95,924 111,281 19,278 105,424 Total NPV S S Project-A Project-B Projectc Project-D Project-E S S $ (3,015) 656 (54,361) 51,884 105,424 Net NPV of total investment S 100,588

Internal rate of return(IRR) Cashflow Particulars Year 0 1 2 3 4 5 Initial Investment Annual cash inflow Annual cash inflow Annual cash inflow Annual cash inflow Annual cash inflow Annual cash inflow Annual cash inflow Annual cash inflow Annual cash inflow Annual cash inflow Internal rate of return(IRR) Project-A Project-B Project-C Project-D Project-E $(210,000.00) $ (275,000.00) $ (300,000.00) $ (165,000.00) $ (300,000.00) $ 30,500.00 $ 60,000.00 $ 50,000.00 $ 40,000.00 $ 100,000.00 $ 30,500.00 $ 80,000.00 $ 60,000.00 $ 50,000.00 $ 100,000.00 $ 30,500.00 $ 62,000.00 $ 60,000.00 $ 60,000.00 $ 120,000.00 $ 30,500.00 $ 70,000.00 $ 60,000.00 $ 50,000.00 $ 150,000.00 $ 30,500.00 $ 72,000.00 $ 80,000.00 $ 75,000.00 $ 28,000.00 $ 30,500.00 $ 70,000.00 $ 30,500.00 $ 30,500.00 $ 30,500.00 $ 30,500.00 7.43% 7.84% 6.75% 17.98% 20.91% 6 7 8 9 10