Review the charts for the three projects and determine NVP, PAYBACK PERIOD, IRR, and PI for all of them (please show the calculations) and then determine which project would provide the most shareholder value to an organization, and why?

Project A Major Equipment Purchase Purchasing cost $10,000,000 Life of project in years 8 Reduction in cost per year 5% Salvage value $500,000 Required rate of return 8% Depreciation MACRS-7 years Annual sales $20,000,000 Earlier Cost of sales (60% of sales) $12,000,000 Tax rate 25%% Year 2 LU 4 5 6 Purchasing Cost $10,000,000 Annual Sales $20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000 Cost of the goods sold $11,000,000 $10,000,000 $9,000,000 |$8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 MACRS - 7 years rates 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93%% 4.46% Annual Depreciation $1,429,000 $2,449,000 $1,749,000 $1,249,000 $893,000 $892,000 $893,000 $446,000 Earnings before interest and taxes (EBIT) / Gross Income $7,571,000 $7,551,000 $9,251,000 $10,751,000 $12,107,000 $13,108,000 $14,107,000 $15,554,000 Taxes (25%) / Income Taxes $ 1,892,750 $ 1,887,750 $ 2,312,750 $ 2,687,750 $ 3,026,750 $ 3,277,000 $ 3,526,750 $ 3,888,500 Earnings after taxes / Net Income $5,678,250 $5,663,250 $6,938,250 $8,063,250 $9,080,250 $9,831,000 $10,580,250 $11,665,500 Add Depreciation $1,429,000 $2,449,000 $1,749,000 $1,249,000 $893,000 $892,000 $893,000 $446,000 Add: After tax salvage value $375,000 Cash Flows ($10,000,000) $7,107,250 $8,112,250 $8,687,250 $9,312,250 $9,973,250 $10,723,000 $11,473,250 $12,486,500 Cummulative Cash Flows ($10,000,000) ($2,892,750) $5,219,500 $13,906,750 $23,219,000 $33,192,250 $43,915,250 $55,388,500 $67,875,000 Present Value factor (8) 0.93 0.86 0.79 0.74 0.68 0.63 0.58 0.54 Present value of cash flows ($10,000,000) $6,580,787 $6,954,947 $6,896,219 $6,844,782 $6,787,626 $6,757,309 $6,694,531 $6,746,067 Present value of cash inflows $54,262,269 Present value cash outflows $10,000,000 Net present value = Present value of cash inflows - Present value of cash outflows $44,262,269 NPV Formula: $44,262,269 Internal rate of return (IRR) IRR: 79.79% Payback period 1.36 profitability Index (PI) + present value of cash inflows/ present value of cash outflows 5.43Project B: Expansion Into Three Additional States nsion Into Three Additional St Start up Cost $7,000,000 Life of a project in years 5 Annual Depreciation (using straightline) $1,400,000 Net working capital $1,000,000 Required rate of Return 12% Earlier annual sales $20,000,000 Earlier Cost of sales (60% of sales) $12,000,000 Increase in sales and revenue per year 10% Tax rate 25% Year 1 2 3 5 Purchasing Cost $7,000,000 Annual Sales $22,000,000 $24,200,000 $26,620,000 $29,282,000 $32,210,200 Cost of goods sold $13,200,000 $14,520,000 $15,972,000 $17,569,200 $19,326,120 Annual Depreciation $1,400,000 $1,400,000 $1,400,000 $1,400,000 $1,400,000 Earnings before interest and taxes (EBIT) $7,400,000 $8,280,000 $9,248,000 $10,312,800 $11,484,080 Tax (30%) $1,850,000 $2,070,000 $2,312,000 $2,578,200 $2,871,020 Earnings after tax $5,550,000 $6,210,000 $6,936,000 $7,734,600 $8,613,060 Plus Depreciation $1,400,000 $1,400,000 $1,400,000 $1,400,000 $1,400,000 Net working capital ($1,000,000) $1,000,000 Cash flows ($8,000,000) $6,950,000 $7,610,000 $8,336,000 $9,134,600 $11,013,060 Cummulative Cash flows ($8,000,000) ($1,050,000) $6,560,000 $14,896,000 $24,030,600 $35,043,660 Present value factor (12%) 1.00 0.89 0.80 0.71 0.64 0.57 Present value of cash flows ($8,000,000) $6,205,357 $6,066,645 $5,933,400 $5,805,203 $6,249,106 Present value of cash inflows $30,259,712 Present Value of Cash outflows $8,000,000 Net Present Value = Present Value of cash inflows - Present Value of cash outflows $22,259,712 NPV Formula: $22,259,712 Internal rate of return IRR: 91.48% payback period 1.14 Profitability Index (PI) 3.78Project C Marketuing/ Advertising Campaign Annual cost $2,000,000 Life of project in years 6 Required rate of return 10% Earlier Annual sales $20,000,000 Earlier Cost of Sales (60% of sales) $12,000,000 Increase in sales and revenue per year 15% Tax rate 25% Year 1 2 3 4 5 6 Marketing / Advertising cost $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 Present value of Annual marketing cost $8,710,521 Annual sales 523,000,000 $26,450,000 $30,417,500 $34,980,125 $40,227,144 $46,261,215 Cost of the Goods sold $13,800,000 $15,870,000 $18,250,500 $20,988,075 $24,136,286 $27,756,729 Earnings before interest and taxes (EBIT) $9,200,000 $10,580,000 $12,167,000 $13,992,050 $16,090,858 $18,504,486 Taxes (25%) $2,300,000 $2,645,000 $3,041,750 $3,498,013 $4,022,714 $4,626,122 Earnings after taxes $6,900,000 $7,935,000 $9,125,250 $10,494,038 $12,068,143 $13,878,365 Cash Flows ($8,710,521) $6,900,000 $7,935,000 $9,125,250 $10,494,038 $12,068,143 $13,878,365 Present value factor (10%) 1.00 0.91 0.83 0.75 0.68 0.62 0.56 Present value of cash flows ($8,710,521) $6,272,727 $6,557,851 $6,855,935 $7,167,569 $7,493,367 $7,833,975 Cummulative Cash flows ($8,710,521) ($1,810,521) $6,124,479 $15,249,729 $25,743,766 $37,811,909 $51,690,274 Present value of cash inflows $42,181,425 Present value of cash outflows $8,710,521 Net Present Value = Present Value of cash inflows - Present value of cash outflows $33,470,904 NPV Formula: $33,470,904 internal rate of return IRR: 90.36% Payback periodd 1.23 Profitability Index (PI) = present value of cash inflows/ present value of cash outflows 4.84