A CEO identified two investment opportunities. Project A will cost $50,000 and Project B will cost $90,000. The CEO has decided that it will invest in one project but not both. The expected cash flow that will be generated by both project are listed below:

		Project A	Project B
Initial capital expenditure		$50,000	$90,000
Cash year	1	25,000	30,000
	2	20,000	40,000
	3	15,000	14,000
	4	10,000	26,000
	5	10,000	10,000

    

In addition, the following table provides the close share price for the Company's (MSFT) and NASDAQ, and the net income for MSFT:

	MSFT	NASDAQ	Net Income	Total Dividend
2015	$50	$5,000	$200,000.00	$130,000.00
2016	$55	$5,500	$206,000.00	$133,900.00
2017	$50	$6,000	$214,240.00	$139,256.00
2018	$60	$6,750	$224,952.00	$146,218.80
2019	$66	$7,500	$237,324.36	$154,260.83
2020	$72	$7,853	$253,937.07	$165,059.09

Question:
Calculate each of the following (with steps) for both investments opportunities (Project A and B):

a. The Payback Period (PP)
b. The Accounting Rate of Return (ARR)
c. The discounted Payback Period (DPP)                    
d.The Net Present Value (NPV)
e. The Profitability Index (PI)              
f. The Internal Rate of Return (IRR)
g. The Modified Internal Rate of Return (MIRR)
h. Advice the CEO, with reasons, which project should be selected.

Answer rating: 100% (QA)

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