You have been asked to compare three alternative investments and
You have been asked to compare three alternative investments and make a recommendation.
• Project A has an initial investment of $5 million and after-tax cash flows of $2.5 million a year for the next five years.
• Project B has no initial investment, after-tax cash flows of $1 million a year for the next 10 years, and a salvage value of $2 million (from working capital).
• Project C has an initial investment of $10 million, another investment of $5 million in 10 years, and after-tax cash flows of $2.5 million a year forever.
The discount rate is 10% for all three projects. Which of the three projects would you pick? Why?
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