You work for a company, whose expectations for rate of return on projects varies according to their

category. The cash flow information for $4$ potential projects is described below.

a$)$ Find the NPV of each project $(10$ marks$).$

b$)$ Which of the projects would you fund if the decision is based only on financial information? $(1$

marks$)$

c$)$ What other information would you need to make such a decision? Why? $(2$ marks$)$

d$)$ Would an organization ever take on a project with negative NPV$?$ If so why? $(2$ marks$)$

A$.$ Project ALPHA: This project requires an initial investment of $$500,000$ at the project initiation and will

cost an estimated $$150,000$ in each of the following $5$ years. Project revenues will begin in year $5,$

estimated at $$500,000$ in year $5,$ $$150,000$ in year $6,$ $$200,000$ in year $7,$ $$250,000$ in year $8,$ $$300,000$ in

year $9,$ and $$500,000$ in year $10.$ The company expects a minimum of $8\%$ return on this type of project. Be

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B$.$ Project BETA: Project Beta requires investment of $$800,000$ at initiation, and then an estimated

$$350,000,$ $$250,000,$ $$150,000$ and $$150,000$ in the following $4$ years, respectively. Annual revenues will

begin to flow in starting in year $5$ at $$300,000$ per year up to and including year $14.$ The company

expects a minimum of $7\%$ return on this type of project. sure to mention that the project has high risk.

C$.$ Project CAPPA: This project will require an initial investment of $$500,000$ at the project initiation, plus an

estimated $$450,000,$ $$325,000$ and $$325,000$ in each of the following $3$ years, respectively. The payout

for this project will be lump sums of $$1,000,000$ in each of years $4$ and $5.$ The company expects a

minimum of $10\%$ return on this type of project.

D$.$ Project DELTA: Project Delta is a $15$ year project that requires an initial investment of $$500,000.$ Annual

costs in each of the following years of $$75,000$ will be offset by biannual revenues $($every two years

starting in year $3)$ of $$300,000$ in each of those years. The company expects a minimum of $5\%$ return on

this type of project.