Max Laboratories is evaluating three independent projects. Project 1: Dog Treats, Project 2: Dog Food, and Project 3: Dog Toys. WAAC is 10%

	Treats	Food	Toys
	Cash Flows
Initial Investment	$ 4,000,000	$ 3,800,000	$ 4,400,000
1	$ 1,200,000	$ 800,000	$ 2,300,000
2	$ 1,400,000	$ 1,000,000	$ 1,900,000
3	$ 1,500,000	$ 1,700,000	$ 1,000,000
4	$ 1,800,000	$ 2,200,000	$ 800,000
Std. Deviation of IRR	10%	8%	12%

1. Calculate Payback Period, NPV, IRR, and MIRR for all projects.

Which project(s) should the firm accept? Explain in detail the reasons for your recommendation.

2. Max Labs Inc. current portfolio of products has a 10% IRR and a 10% standard deviation. The correlation coefficients with the firm portfolio are 0.5 (r=0.5) for both, Dog Treats and Dog Food; zero correlation with Dog Toys (r=0).

A) Calculate the effect of each of the projects on the overall risk of the firm (standard deviation) and on the Coefficient of Variation (CV). To calculate the combined IRR and std. deviations, consider that the weight of each project is 20% of the total portfolio.

B) What is your opinion on Max Labs' coefficient of variation and total risk before and after undertaking each project.

Answer rating: 100% (QA)

Payback period Project A Year Cash flow Cumulative cash flow 1 1200000 1200000 2 1400000 2600000 3 1... View the full answer