Assume that six projects, A–F in the table that follows, have been submitted for inclusion in the coming year’s budget for capital expenditures: 

Required

1. Calculate the internal rates of return (to the nearest half per cent) for projects B, C and D. Rank all projects in descending order in terms of the internal rate of return. Show your calculations. 

2. Based on your answer in requirement 1, state which projects you would select, assuming a 10% required rate of return (a) if €500,000 is the limit to be spent, (b) if €550,000 is the limit, and (c) if €650,000 is the limit. 

3. Assuming a 16% required rate of return and using the net present value method, calculate the net present values and rank all the projects. Which project is more desirable, C or D? Compare your answer with your ranking in requirement 1. 

4. What factors other than those considered in requirements 1 to 3 would influence your project rankings? Be specific.

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Project cash flows Year A B C D E F Investment €(100 000) €(100 000) €(200 000) €(200 000) €(200 000) €(50 000) 70 000 20 000 5 000 23 000 2. 10 000 20 000 70 000 15 000 20 000 3. 20 000 20 000 70 000 30 000 10 000 4 20 000 20 000 70 000 50 000 10 000 20 000 20 000 70 000 50 000 Per year 6-9 20 000 20 000 200 000 50 000 10 20 000 20 000 50 000 Per year Internal rate of return 11-15 20 000 14% 12.6% 12.0%