Question

# There are four projects to consider that have the following net yearly cash flows. 0 1...

There are four projects to consider that have the following net yearly cash flows.

0

1

2

3

4

5

6

P1

-3000

-500

1000

2000

4000

P2

-1000

-1000

500

0

400

500

2000

P3

-4000

2000

-3000

5000

7000

1000

P4

-2000

-4000

-1000

8000

1000

The MARR for this company is 12%.

a) You can select up to two projects to complete. Which projects would you recommend?

b) Management has imposed a time limit of 4 years for the projects. What is the implied salvage value for projects 2 and 3?

 Years P1 P2 P3 P4 0 -3000 -1000 -4000 -2000 1 -500 -1000 2000 -4000 2 1000 500 -3000 -1000 3 2000 0 5000 8000 4 4000 400 7000 1000 5 500 1000 6 2000 IRR 24% 13% 37% 12% NPV ? 1,316.40 ? -1,240.05 ? 3,401.66 ? -38.86

a) Since the time limit is for 4 years, running NPV and IRR for 4 years cashflow, we find that P1 and P3 can be selected

b) The implied salvage value for projects 2 and 3 are 2000 and 3000 respectively

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