# Economics Homework (Cash flow,IRR, discounting ect)-Long question

Anonymous

Question description

I need the work shown on these problems. You can excel, word or whatever you like to solve them. Thanks

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1.  (20 Points) Your company is considering investing in three projects with projected Operating Income and Investment streams as shown in the following table. (10 points) Rank the three projects by NPV, ROI, IRR, and DROI assuming your investment opportunity rate is 20% and using mid-period discounting.

a.  (5 points) If your company only has \$6 million to invest in one of these projects (and plenty of small projects that will return 20% on average) which project do you recommend?

b.  (5 points) If your company finds some more money and now has \$11 million to invest (and plenty of small projects that will return 20% on average) which project(s) do you recommend?

 Year Project A Project B Project C Oper Inc M\$ Invest M\$ Oper Inc M\$ Invest M\$ Oper Inc M\$ Invest M\$ 0 1000 1000 1000 1 0 1000 0 1000 0 1000 2 2000 3000 2000 2000 2000 3000 3 8000 0 4000 1000 3500 0 4 4000 0 3600 1000 3150 0 5 2000 0 3240 0 2835 0 6 1000 0 2916 0 2552 0 7 500 0 2624 0 2297 0 8 2362 0 2067 0 9 1860 0 10 1674 0

2.  (20 Points) You have a choice between the following two mutually exclusive projects.  Assume cash is received at the end of the year.

 Net Cash Flow Year Project 'A' Project 'B' 0 \$(40,000.00) \$(40,000.00) 1 \$  30,000.00 \$  - 2 \$  20,000.00 \$  - 3 \$  10,000.00 \$  - 4 \$  - \$  50,000.00 5 \$  - \$  40,000.00

a.  (5 points) Plot the present value profile for both projects on the same graph. (Use a range between 0-100%)

b.  (5 points) Which project would you recommend if your investment opportunity interest rate is 10%? What is the NPV for each project at this rate?

c.  (5 points) Which project would you recommend if your investment opportunity interest rate is 20% what is the NPV for each project at this rate?

d.  (5 points) What is the IRR for each project?

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