Ranking projects. (adapted from NAA Research Report No. 35, pp.

83-85). (40 minutes) Assume that six projects, A-F in the table that follows, have been submitted for inclusion in the coming year’s budget for capital expenditures: nju2

REQUIRED 1. Calculate the internal rates of return (to the nearest half percent) for projects B,C and D. Rank all projects in descending order in terms of the internal rate of return. Show your calculations.
2. Based on your answer in requirement 1, state which projects you would select, assuming a 10% required rate of return

(a) if EUR 500,000 is the limit to be spent,

(b) if EUR 550,000 is the limit, and

(c) if EUR 650,000 is the limit.
3. Assuming a 16% required rate of return and using the net present-value method, calculate the net present values and rank all the projects. Which project is more desirable, C or D? Compare your answer with your ranking in requirement 1.
4. What factors other than those considered in requirements 1-3 would influence your project rankings? Be specific.

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YEAR A B PROJECT CASH FLOWS C D E F Investment 0 EUR (100,000) EUR (100,000) EUR (200,000) EUR (200,000) EUR (200,000) EUR (50,000) 1 0 20,000 70,000 0 5,000 23,000 2 10,000 20,000 70,000 0 15,000 20,000 3 20,000 20,000 70,000 0 30,000 10,000 4 20,000 20,000 70,000 0 50,000 10,000 5 20,000 20,000 70,000 0 50,000 Per year 6-9 20,000 20,000 200,000 50,000 10 20,000 20,000 50,000 Per year 11-15 20,000 Internal rate of return 14% 12.6% 12.0%