(Part 1)
Using a 5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.
Project 1
Initial Invest= $500,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.
Project 2
Initial Invest= $1,000,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10.
Project 3
Initial Invest= $800,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10.
(Part 2)
Assuming a budget of $1,200,000 what are your recommendations for the three projects in the above problem. Explain.
Assuming a budget of $2,000,000 what are your recommendations for the above problem? Explain.