Question
Consider the following two investment projects: Year Investment A end of year cash flows Investment B end of year cash flows 2022 +$200,000 +$100,000 2023
Consider the following two investment projects:
Year | Investment A end of year cash flows | Investment B end of year cash flows |
2022 | +$200,000 | +$100,000 |
2023 | +400,000 | +100,000 |
2024 | +400,000 | +100,000 |
2025 | +400,000 | +800,000 |
2026 | +600,000 | +1,000,000 |
Both projects require an investment of $1,000,000 at the end of 2021. The required rate of return for both projects is 10%.
Required
Prepare a report to the CEO of the company comparing both projects and providing a recommendation based on your analysis. Your report should include the following :
Part 1
Evaluating and comparing both projects using all of the following techniques:
a. Payback period
b. Discounted payback period
c. Net present value
d. Internal rate of return
Note: you will need to show all relevant calculation and explain your findings for each method
Part 2
The CEO is very concerned about the rising inflation rate in Canada and would like to understand in a small paragraph ( 4 to 5 sentences) how would this impact the decision to invest.
Part 3
The CEO would like to know why did the analysis excluded financing costs.
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