Project A

Pay back period (A)= 1+(90000/170000)=

1.53

years

Note--Initial investment, 280000-CF1, 190000=90000 balance

IRR(A)---

equating the CFs to 0

0=-280000+(190000/(1+r)^1)+(170000/(1+r)^2)

IRR,r= 18.91%

NPV (A) at 10% =-280000+(190000/1.10^1)+(170000/1.10^2)=

33223.1405

PI (A )=1+(NPV/Initial Investment)

ie.1+(33223.14/280000)=

1.12

Project B

Pay back period (B)=1+(120000/240000)=

1.50

years

Note--Initial investment, 390000-CF1, 270000=120000 balance

IRR(B)---

equating the CFs to 0

0=-390000+(270000/(1+r)^1)+(240000/(1+r)^2)

IRR,r= 20.36%

NPV (B) at 20% =-390000+(270000/1.20^1)+(240000/1.20^2)=

1666.67

PI ( B) =1+(NPV/Initial Investment)

ie.1+(1666.67/390000)=

1.00

Project C

Pay back period (C)=1+(70000/190000)=

1.37

years

Note--Initial investment, 230000-CF1, 160000=70000 balance

IRR(C)---

equating the CFs to 0

0=-230000+(160000/(1+r)^1)+(190000/(1+r)^2)

IRR,r= 32.10%

NPV (C) at 15% =-230000+(160000/1.15^1)+(190000/1.15^2)=

52797.73

PI (C )=1+(NPV/Initial Investment)

ie.1+(52797.73/230000)=

1.23

Project	A	B	C	Ranking
PBP(in yrs.)	1.53	1.5	1.37	C
IRR	18.91%	20.36%	32.10%	C
NPV	33223.14	1666.67	52797.73	C
PI	1.12	1.00	1.23	C
Initial Investment Reqd.	280000	390000	230000
Capital available	400000	400000	400000

When A & B are combined, total initial investment , 280000+390000= 670000 > 400000 (funds authorised)

When B & C are combined, total initial investment , 390000+230000= 620000 > 400000 (funds authorised)

When A & C are combined, total initial investment , 280000+230000= 510000 > 400000 (funds authorised)

so, projects need to be taken up individually only.

That said,

Based on the above workings & summary of results

Project C is recommended based on the following :

1.NPV, $ 52797.73 is POSITIVE & also will bring the highest value to the company.

2.IRR, 32.10 % is the highest & also > 20% , the project's COC

3.PI , 1.23 is the highest , compared to the initial investment in the project.

4.Payback period, ie. The no.of years taken to recoup the initial investment is the shortest, at 1.37 years .

question;

Based on the results obtained in the graph, explain how does project financing and the expected returns get affected in a semi-strong market? Provide examples to justify your reasoning.