Investment Analysis

 

 

 

 

 

 

 

Problem 1
A company is evaluating three possible investments. Following information is provided by the company.
Project A Project B Project C
Investment $200,000 $50,000 $200,000
Salvage value (Residual Value) 0 5,000 10,000
Net cash flows:
Year 1 50,000 25,000 80,000
Year 2 50,000 16,000 50,000
Year 3 50,000 12,000 60,000
Year 4 50,000 9,000 20,000
Year 5 50,000 0 0
Required rate of return 9% 9% 9%
(Assume that the company uses the straight-line depreciation method.)
Using the following 4 methods of assessing these three projects, please advise the company by the
most relevant project to invest in justifying your choice of investment
1) Calculate Payback Period
2) Calculate ARR
3) Calculate NPV
4) Calculate PI
Present value of annuity of $1:
8% 9% 10%
1 0.926 $0.92 0.909
2 1.783 1.759 1.736
3 2.577 2.531 2.487
4 3.312 3.24 3.17
5 3.993 3.89 3.791
6 4.623 4.486 4.355
Present value of $1:
8% 9% 10%
1 0.926 0.917 0.909
2 0.857 0.842 0.826
3 0.794 0.772 0.751
4 0.735 0.708 0.683
5 0.681 0.65 0.621
6 0.63 0.596 0.564

 

 

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