Comparing Investment Criteria You are a senior manager at Poeing Aircraft and have been authorized to spend up to $400,000 for projects. The three projects you are considering have the following characteristics:
Project A: Initial investment of $280,000. Cash flow of $190,000 at year 1
and $170,000 at year 2. This is a plant expansion project, where the
required rate of return is 10 percent.
Project B: Initial investment of $390,000. Cash flow of $270,000 at year 1 and
$240,000 at year 2. This is a new product development project,
where the required rate of return is 20 percent.
Project C: Initial investment of $230,000. Cash flow of $160,000 at year 1 and
$190,000 at year 2. This is a market expansion project, where the
required rate of return is 15 percent.
Assume the corporate discount rate is 10 percent.
Please offer your recommendations, backed by your analysis:
| A | B | C
| Implications |
Payback | ||||
IRR | ||||
PI | ||||
NPV | ||||
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