Finance assignment question 4

Assignment: Answer the following question

1. Calculate the NPV for the following projects with a discount rate of 12%:

• Project 1 costs $100,000 and earns $50,000 each year for three years.
• Project 2 costs $200,000 and earns $150,000 in the first year, and then $75,000 for each of the next two years.
• Project 3 costs $25,000 and earns $20,000 each year for three years.

The projects are mutually exclusive.

1. Calculate the NPV of all 3 projects. Which one should we accept?
2. Calculate the IRR for the 3 projects. Which has the highest IRR? If the hurdle rate 10%, which one will you accept?
3. Calculate also the PI for each of the 3 projects. Which one should be accepted?

2. Briarcliff Stove Company is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of $700,000 at time 0. After-tax cash inflows of $250,000 are expected in year 1 and 2, $300,000 in year 3, $350,000 in year 4, and $400,000 each year thereafter through year 8.
   1. If the required rate of return is 15 percent, what is the net present value of the project? Is it acceptable?
   2. What is its internal rate of return?
   3. What would be the case if the required rate of return was 10 percent?
   4. What is the project’s payback period?