Peterson Industries has three potential projects it could invest in for the coming year. Finances are tight, so it needs to choose the projects with the greatest benefit for the company. The company’s WACC is 7%. The details on the three projects are:

REQUIRED:

a. Calculate the present value of each of these projects using the 7% discount rate.

b. If the company can only afford to spend $250,000 this year to start projects, which two projects should the company choose? Why?

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Cash Flow Year Project A Project B Project C Cash flow year 0 ($100,000) ($100,000) ($100,000) Cash flow year 1 Cash flow year 2 $60,000 $20,000 $25,000 $50,000 $30,000 $35,000 Cash flow year 3 Cash flow year 4 $30,000 $50,000 $45,000 $20,000 $60,000 $55,000