1. For each set of project cash flows, calculate the Net Present Value, using discount rates of 8%, 10%, and 12%. For each discount rate, rank the projects. Explain why the ranking changes as the discount rate increases.

Exhibit 1 The Investment Detective Projects' Free Cash Flows (dollars in thousands) Project number: 1 2 3 4 5 6 7 8 Initial investment $(2,000) $(2,000) $(2,000) $(2,000) $(2,000) $(2,000) $(2,000) $(2,000) Year $ 2,200* $ 1,666 334* 165 $ 330 330 330 330 330 330 330* $1,000 $ 1,200 900* 300 90 70 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 $ (350) (60) 60 350 700 1,200 $2,250* $ 160 200 350 395 432 4404 442 444 446 448 450 451 451 452 $(2,000) $ 280 280 280 280 280 280 280 280* 280 280 280 280 280 280 $ 280 $10,000* Sum of cash flow benefits $ 3,310 $ 2,165 $10,000 $ 3,561 $4,200 $2,200 $ 2,560 $4,150 Excess of cash flow over initial investment $ 1,310 $ 165 $ 8,000 $ 1,561 $2,200 $ 200 $ 560 $2,150 * Indicates year in which payback was accomplished