Question
Please help and show workings please: For the first part of this assignment, only quantitative considerations are relevant. No other project characteristics are deciding factors
Please help and show workings please:
For the first part of this assignment, only quantitative considerations are relevant. No other project characteristics are deciding factors in the selection, except that management has determined that projects 7 and 8 are mutually exclusive.
All projects require the same initial investment, $2,000,000. Moreover, all are believed to be of the same risk class. The weighted average cost of capital for the first part is 10%. To simulate your analysis, consider the following questions:
- Can you rank the projects simply by inspecting the cash flows shown in Exhibit I?
- What criteria might you use to rank the projects? Which quantitative ranking methods are better? Why?
- What is the ranking you found by using quantitative methods (please show all your calculations)? Does this ranking differ from the ranking obtained by a simple inspection of the cash flows? (5%)
What kinds of real investment projects have cash flows similar to those in the exhibit?
EXHIBITI Project 1 2,000.00 $ Project cash flows in (000) Project 2 Projects Project 4 2,000.00 $ 2,000.00 $ 2,000.00 $ Projects 2,000.00 $ Project 6 2,000.00 $ Project 2,000.00 $ Projects 2,000.00 $ Initial Investment Year $ 1 2 1,200.00 $ 900.00 $ 300.00 $ 90.00 $ 70.00 S $ $ $ $ $ $ 330.00 S 330.00 S 330.00 $ 330.00 $ 330.00 S 330.00 $ 330.00 S 1,000.00 $ $ $ 1,666.00 $ 334.00 $ 165.00 $ $ $ $ $ $ $ 5,000.00 $ (350.00 (60.00 60.00 350.00 700.00 1,200.00 2,250.00 2,200.00 $ S $ $ $ 4,000.00 $ $ $ $ $ S $ $ $ $ $ s $ $ $ $ $ $ $ $ 9,000.00 $ 160.00 $ 200.00 $ 350.00 $ 395.00 $ 432.00 $ 440.00 $ 442.00 $ 444.00 $ 446.00 $ 448.00 S 450.00 $ 451.00 $ 451.00 $ 452.00 $ (2,000.00 $ 280.00 s 280.00 $ 280.00 $ 280.00 $ 280.00 $ 280.00 $ 280.00 280.00 280.00 280.00 280.00 280.00 280.00 280.00 280.00 4 5 6 7 8 9 10 11 12 13 14 15 Sum of cash flow benefits Excess of cash flow Over investment 2,000.00 S S $ $ $ $ 3,310.00 $ 7,165.00$ 9,000.00 $ 3,561.00$ 4,200.00 $ 6,200.00 $ 4,560.00 $ 4,150.00 $ 1,310.00 $ 5,165.00 S 7,000.00 $ 1,562.00 $ 2,200.00 $ 4,200.00 $ 2,560.00 $ 2,150.00 Yellows/italics indicate year in which payback is accomplished
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