Question
Project Initial Investment NPV IRR A $100,000 $50,000 .13 B $1,000,000 $245,000 .09 C $800,000 $100,00 .14 D $2,000,000 $750,000 .11 E $600,000 $-75,000 .02
Project | Initial Investment | NPV | IRR |
A | $100,000 | $50,000 | .13 |
B | $1,000,000 | $245,000 | .09 |
C | $800,000 | $100,00 | .14 |
D | $2,000,000 | $750,000 | .11 |
E | $600,000 | $-75,000 | .02 |
The discount rate used by the watershed district on its projects is 3.5%.
You have developed a sixth alternative (project F). The investment requirement for this project is the same as A ($100,000), its NPV is $90,000, and its IRR is 8%. Your manager informs you that you are only allowed to invest in project A or F (not both), which have project lives of 5 and 15 years, respectively. Neither project is divisible, but you are allowed to reinvest in project A more than once (i.e., the ARR reinvestment rate).
Your answer includes two parts. First part: What project should you invest in? Second part: How many times should you invest in the project? So you should select two answers from the choices below.
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