The Signal Hill Society (SHS) is considering two large-scale computer investments with the following year-end cash flow patterns. SHS would like you to perform a sensitivity analysis of these projects in relation to the cost of capital, the estimated cost of the project, and the estimated cash flows themselves.

Required:
(a) Calculate the net present value of each project.
(b) Which project is more sensitive to the estimated cost?
(c) Calculate the internal rate of return for each project.
(d) Which project is more sensitive to the discount rate?
(e) Determine the revenues that would cause each project to have a zero net present value. Keep the cost of capital at 12% and the cost unchanged from the original data for this analysis.
(f) Which project is more sensitive to estimated cash flow projections?
(g) Which project is riskier, based on your sensitivity analysis?

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Project cash flows (millions of dollars) 12% Project 1 $(530) 190 190 190 190 12% Project 2 $(400) 140 140 140 140 Cost of capital Year Estimated cost Estimated cash inflows 1 Estimated cash inflows2 Estimated cash inflows 3 Estimated cash inflows