Question

For each of the following projects determine the NPV of each one (provide your answer), and rank them. Then, determine

which of the following projects should a firm undertake if it can invest $25000. Please use a WACC of 11%. Turn your answer in to the drop folder provided.    You will receive 1 point for the correct NPV, Ranking and Recommendation.

Year	Project A	Project B	Project C
0	-9000	-12000	-18200
1	2000	5000	0
2	5000	4000	5000
3	1000	6000	10000
4	4000	2000	12000

Answer 1

Project A Year Cash Flow Discount Factor Discounted Cash flow (9,000.00) (9,000.00) 0 1 1,801.80 1 2,000.00 0.90090 2 5,000.00 0.81162 4,058.11 731.19 3 1,000.00 0.73119 4,000.00 2,634.92 4 0.65873 Total/ NPV 226.03 Project B Discount Factor Discounted Cash flow Cash Flow Year 0(12,000.00) (12,000.00) 1 1 5,000.00 0.90090 4,504.50 2 4,000.00 0.81162 3,246.49 3 6,000.00 0.73119 4,387.15 1,317.46 2,000.00 0.65873 Total NPV 1,455.60 Project C Discount Factor Discounted Cash flow Cash Flow O(18,200.00) Year (18,200.00) 1 0.90090 5,000.00 4,058.11 2 0.81162 3 10,000.00 0.73119 7,311.91 4 12,000.00 0.65873 7,904.77 Total / NPV 1,074.80

If these projects are mutually exclusive then ranking will be:

Rank 1 : Project B

Rank 2: Project C

Rank 3: Project A

If you have $25,000 to invest then it is recommended to invest in "Project B" and "Project A" which will give a combined NPV of $1681.63 and a surplus capital of $4000 (25000 - 9000 - 12000) which you can invest somewhere else.

Discount factor formula:

$Discount~Factor = \frac{1}{(1+i)^n}$

Where,
i = rate of return / discounting
n = number of periods