$1.$ Ibbotson Inc., a company with expertise in designing internet$-$related computer software, is considering two possible capital investments. The first would require an initial investment of $$1$ million, but is forecast to repay $$700,000$ at the end of the next two years. The second would require an initial investment of $$2$ million, but would repay $$950,000$ at the end of each of the next three years. The appropriate discount rate $($the required return$)$ is $10\%$ per year. Ibbotson has sufficient cash on hand to fund either project, and other than these two projects, your firm has no superior investment alternatives. Assume that your goal is to maximize shareholder value.

$($a$)$ Compute the NPV and the IRR for each project. If Ibbotson must choose between the two projects, which should it take?

$($b$)$ The manager who provided the cash flow estimates for the first project argues that the company should invest shareholder capital to obtain the highest possible returns, and he asserts that this is project one. Does his argument alter your assessment of which project is better? Explain.

$($c$)$ Would your evaluation of the argument that the company should invest shareholder capital to obtain the highest possible returns differ if alternative assumptions had been presented? Clarify your reasoning.

$($d$)$ The first proposed project involves development of internet search software. The second proposed project involves rice farming in Thailand. The manager who provided the cash flow forecasts is known to relish the idea of a two$-$year overseas assignment. Is this information relevant in choosing between the two projects?