House Construction Inc. wants to purchase equipment in 2021. The company has collected the information below for three projects it is considering. Project 1 Project 2 Project 3 Net initial investment $7,500,000 $5,000,000 $9,000,000 Projected cash inflows: Year 1 $2,400,000 $1,200,000 $4,800,000 Year 2 $2,400,000 $2,500,000 $4,800,000 Year 3 $2,400,000 $ 1,700,000 $ 900,000 Year 4 $2,200,000 $ 1,000,000 $ 300,000 Year 5 $2,200,000 Required rate of return 6% 6% 6% Required: (a) Calculate the Net Present Value (NPV) for each project and indicate which project the company should adopt (b) Calculate the payback period for each project and indicate which project the company should adopt if it requires a return of its investment in not more than three (3) years.
Problem 4
House Construction Inc. wants to purchase equipment in 2021. The company has collected the information below for three projects it is considering.
|
|
Project 1 |
Project 2 |
Project 3 |
|
Net initial investment |
$7,500,000 |
$5,000,000 |
$9,000,000 |
|
Projected |
|
|
|
|
Year 1 |
$2,400,000 |
$1,200,000 |
$4,800,000 |
|
Year 2 |
$2,400,000 |
$2,500,000 |
$4,800,000 |
|
Year 3 |
$2,400,000 |
$ 1,700,000 |
$ 900,000 |
|
Year 4 |
$2,200,000 |
$ 1,000,000 |
$ 300,000 |
|
Year 5 |
$2,200,000 |
|
|
|
|
|
|
|
|
Required |
6% |
6% |
6% |
|
|
|
|
|
Required: (a) Calculate the
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