1. A company has three new project ideas that are all expected to last 4 years. Unfortunately due to a resource constraint they can only pursue 2 of these projects. Assume the development costs for all projects are paid up front (i.e. prior to the start of the project). The specific financial projections for the three projects are:

Project 1 Development cost would be $50,000. Projected revenues from the project are $50,000 in the first year with an expected annual growth of 10% each of the next 3 years.

Project 2 - Development cost would be $100,000. Projected revenues from the project are expected to be a constant $72,000 for all 4 years.

Product 3 - Development cost would be $150,000. Projected revenues are $100,000 in the first year with an expected decline of 10% each of the next 3 years.

If the company uses a 7.5% hurdle rate and estimates inflation at 1% annually what is each project s NPV? (In addition to the total NPV for each project You MUST show your calculations & annual NPV values for each project)

Project 1
YEAR	NetFlow
c0	-$50,000.00
c1	$50,000.00
c2	$55,000.00
c3	$60,500.00
c4	$66,550.00

Project 2
YEAR	NetFlow
year 0	-$100,000.00
year 1	$72,000.00
year 2	$72,000.00
Year 3	$72,000.00
Year 4	$72,000.00

Project 3
YEAR	NetFlow
year 0	-150,000.00
year 1	100,000.00
year 2	90,000.00
Year 3	81,000.00
Year 4	72,900.00