You are the financial manager of Acme Manufacturing Company, an automotive supply company located in Elkhart, Indiana. The President/CEO of the company has asked you to evaluate three capital investment projects that the company is considering pursuing during the upcoming year. Details on the projects are presented below:

Project 1 Install new manufacturing line

• Initial cost: $2,500,000
• Term of project: 6 years
• Project Net Cash flows: Year 1 = $500,000, Years 2 through 5 = $700,000/yr, and Year 6 = $6,000,000 (including salvage proceeds)

Project 2 Acquire Wile E. Coyote Enterprises

• Initial cost: $5,000,000
• Hold Period: 6 years (that is, Acme intends to hold Coyote Enterprises for 6 years after which, it will sell off this acquired company)
• Sale of the company at the end of year 6 and operational cash flows during year 6 are projected to generate $6,000,000 total net of any disposition costs
• Coyote Enterprises Projected Operating Net Cash flows for the other years are: Year 1 = $800,000, Year 2 = $700,000, Year 3 = $700,000, Year 4 = $700,000, and year 5 = $500,000

Project 3 Acquire Fudd Company

• Initial cost: $4,000,000
• Hold Period: 6 years (after which Fudd company will be sold)
• Sale of the company at the end of year 6 and operational cash flows during year 6 are projected to generate $10,000,000 total net of any disposition costs
• Fudd Company Projected Operating Net Cash flows for the other years are: Year 1 = $2,000,000, Year 2 = $3,000,000, Year 3 = ($700,000) (a loss for the year), Year 4 = $4,000,000, and year 5 = $2,000,000