Investment Analysis

    Problem 1 A company is evaluating three possible investments. Following information is provided by the company. Project A Project B Project C Investment $200,000 $50,000 $200,000 Salvage value (Residual Value) 0 5,000 10,000 Net cash flows: Year 1 50,000 25,000 80,000 Year 2 50,000 16,000 50,000 Year 3 50,000 12,000 60,000 Year 4 50,000 9,000 20,000 Year 5 50,000 0 0 Required rate of return 9% 9% 9% (Assume that the company uses the straight-line depreciation method.) Using the following 4 methods of assessing these three projects, please advise the company by the most relevant project to invest in justifying your choice of investment 1) Calculate Payback Period 2) Calculate ARR 3) Calculate NPV 4) Calculate PI Present value of annuity of $1: 8% 9% 10% 1 0.926 $0.92 0.909 2 1.783 1.759 1.736 3 2.577 2.531 2.487 4 3.312 3.24 3.17 5 3.993 3.89 3.791 6 4.623 4.486 4.355 Present value of $1: 8% 9% 10% 1 0.926 0.917 0.909 2 0.857 0.842 0.826 3 0.794 0.772 0.751 4 0.735 0.708 0.683 5 0.681 0.65 0.621 6 0.63 0.596 0.564