Apollo Vapor Manifolds has five independent projects under consideration, one project for each of their major service
Question:
Apollo Vapor Manifolds has five independent projects under consideration,
one project for each of their major service lines -- Alpha, Theta, Omicron,
Chi, and Omega. Alpha, Theta, Omicron, and Chi in a single business
unit for commercial solutions; while Omega is run out of a separate
organization focused on consumers as customers. The required rate of
return for all
commercial solutions
projects is 12%, while the required
rate of return for consumer product solutions is higher at 15%
(management believes that consumer solutions carry a higher risk). The
total projects budget for Apollo Vapor Manifolds is
$4.9 million
. A table
showing the investments for the projects being considered in each service
line and projected free cash flows follows:
All projects are expected to generate free cash flows for 6 years before
being retired or scrapped (with no residual value).
No additional cash flows are expected from any of the five projects after
year 6. Year 6 cash flow includes selling any assets remaining from the
project and discontinuing the service
All columns for this questions
| Project/Year | Alpha | Theta | Omicron | Chi | Omega |
| 0 | $ (1,850,000.00) | $ (1,750,000.00) | $ (1,100,000.00) | $ (650,000.00) | $ (2,375,000.00) |
| 1 | $ 600,000.00 | $ 350,000.00 | $ 600,000.00 | $ 250,000.00 | $ 500,000.00 |
| 2 | $ 600,000.00 | $ 400,000.00 | $ 300,000.00 | $ 250,000.00 | $ 800,000.00 |
| 3 | $ 600,000.00 | $ 600,000.00 | $ 325,000.00 | $ 200,000.00 | $ 800,000.00 |
| 4 | $ 400,000.00 | $ 600,000.00 | $ 200,000.00 | $ 180,000.00 | $ 800,000.00 |
| 5 | $ 300,000.00 | $ 400,000.00 | $ 110,000.00 | $ 100,000.00 | $ 550,000.00 |
| 6 | $ 200,000.00 | $ 150,000.00 | $ 80,000.00 | $ 50,000.00 | $ 500,000.00 |
Specific column related to this question
| Project/Year | Alpha | Omega | Combined | |||
| 0 | $ (1,850,000.00) | $ (2,375,000.00) | $(4,225,000.00) | |||
| 1 | $ 600,000.00 | $ 500,000.00 | $ 1,100,000.00 | |||
| 2 | $ 600,000.00 | $ 800,000.00 | $ 1,400,000.00 | |||
| 3 | $ 600,000.00 | $ 800,000.00 | $ 1,400,000.00 | |||
| 4 | $ 400,000.00 | $ 800,000.00 | $ 1,200,000.00 | |||
| 5 | $ 300,000.00 | $ 550,000.00 | $ 850,000.00 | |||
| 6 | $ 200,000.00 | $ 500,000.00 | $ 700,000.00 | |||
| IRR | 14.62% | 17.15% | 16.15% | |||
| NPV | $469,282.94 |
Question:
Concluding with Apollo Vapor Manifolds. In addition to providing the CEO
with the combined IRR of the Alpha and the Omega projects you also
calculated and reported the combined NPV of _________.
Expert Answer:
