Cargo Specialists is planning to invest in the following projects X,Y and Z. The initial investment costs and the annual free cash flows over the life of each project are shown in the above table.

All potential investment projects have the same level of risk and the required rate of return is 13%.

Q1: Define Payback Period (PP) and compute all potential projects payback period.

Q2: According to the Payback Period (PP) evaluation method, which project(s) do you consider that should be implemented if the maximum payback period accepted by the company is 3 years? Which would be your answer in case the programs were mutually exclusive?

Q3: Calculate the Discounted Payback Period (DPP) of all investments projects under consideration. Your investment decisions should change based on the Discounted Payback Period (DPP)?

Q4: Define Net Present Value (NPV) and then calculate the NPV of each project under consideration.

Q5: Anccording to the NPV criterion, which project(s) would be implemented by the company in case the projects under consideration are independent? Does your decision change in case of mutual exclusive projects?

Q6: Define the Internal Rate of Return (IRR) and calculate the IRR of each potential investment.

Q7: According to the IRR evaluation method, which project(a) would be implemented by the company in case the projects under consideration are independent? Does your decision change in case of mutual exclusive projects?

Q8: Do you consider that both basic evaluation methods (NPV and IRR) lead to the same conclusion about the acceptance or rejection decision of all programs under consideration? If not, under which circumstances that occurs?

Q9: Which is your ultimate investment choice if the plans are mutually exclusive? Justify your answer.

\begin{tabular}{|c|c|c|c|} \hline & Program X & Program Y & Program Z \\ \hline Initial Investment Cost & 85,000 & 60,000 & 80,000 \\ \hline Year & - & Free Cash Flo & \\ \hline 1 & 25,000 & 30,000 & 17,000 \\ \hline 2 & 27,000 & 42,000 & 17,000 \\ \hline 3 & 630,000 & & 17,000 \\ \hline 4 & 36,000 & & 17,000 \\ \hline 5 & & & 17,000 \\ \hline 6 & & & 17,000 \\ \hline 7 & & & 17,000 \\ \hline 8 & & & 17,000 \\ \hline \end{tabular}