Question
create a model to solve the following problem and provide analitical conclusion: Project A requires an initial investment of $5,000,000, starting from Year 2, this
create a model to solve the following problem and provide analitical conclusion:
Project A requires an initial investment of $5,000,000, starting from Year 2, this project is expected to generate a net cashflow of $80,000 for Year 2, with 20% increase in net cashflow for Year 3 through Year 5.
Annual growth rate for Year 6 and thereafter is expected to be 5%
Project B requires an initial investment of $5,500,000, starting from Year 2, this project is expected to generate a net cashflow of $110,000 for Year 2, with 18% increase in net cashflow for Year 3 through Year 5.
Annual growth rate for Year 6 and thereafter is expected to be 5%
Use NPV method with WACC rate 15%, to evaluate the two options and determine which investment project should be selected and explain why.
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