Question

As a hydrologist, you have identified the following five different treatments for reducing sedimentation within the watershed, respectively .

Project: A ; B; C; D; E

Project Initial Investment: $100,000 ; $1, 000, 000 ; $800,00 ; $2,000,000 ; $ 600,000

NPV : $50,000 ; $245,000 ; $100,00 ; $750,000; $-75,000

IRR : .13 ; .09 ; .14 ; .11 ; .02

The discount rate used by the watershed district on its projects is 3.5%.

1.The five projects are now divisible, meaning you can implement them at smaller scales. Your watershed manager has indicated that the budget for watershed protection is limited to $3.5 million. What is your recommendation to the district manager for expenditure of available project dollars for watershed protection? Provide the answer also in percentage.

2.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).   

First part: What project should you invest in? (2 pts) Second part: How many times should you invest in the project? (2 pts) So you should select two answers from the choices below.

Answer 1

Ans1)