Problem 2. Part A

The following data allowed the controller to calculate the NPV of each project.

Investment Opportunity	MaxCell	SuperCell
Initial investment	$ 6,000,000	$ 10,000,000
Useful life	4 years	4 years
Salvage value	$ -	$ -
Expected operating income for year 1	$ 800,000	$ 1,500,000
Operating income annual growth	-10%	-40%
Required rate of return	14%	14%

Calculate the NPV of the two projects. From the firms perspective, which of the two projects should be taken on?

Problem 2. Part B

Jerry knows that he will leave the company at the end of the first year. He wants to look good and jump to a new and higher position in another firm. What projects will he invest in? Is ROI a goal congruent performance measure in this case? Why?

Problem 2. Part C

What would be your answer in part B if Jerry were evaluated with the annual RI? Would your answer change if he planned to stay in the company for 4 years? (Hint: assume the managers discount rate is the same as the firms 14%.)