Question: ABC Corporation is looking to select a new project. During its exploration, three potential projects are shortlisted. The forecasted cash flows are as follows (the
ABC Corporation is looking to select a new project. During its exploration, three potential projects are shortlisted. The forecasted cash flows are as follows (the start of each project is Year 1 and cash flows happen during the entire period):
| Year | Project A | Project B | Project C | |||
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| Income | Expenses | Income | Expenses | Income | Expenses |
| 1 | 6,800 | 15,600 | 9,800 | 14,200 | 18,900 | 16,500 |
| 2 | 18,500 | 18,000 | 13,200 | 16,500 | 21,500 | 17,200 |
| 3 | 34,500 | 25,200 | 55,000 | 38,900 | 25,600 | 17,500 |
| 4 | 45,000 | 32,100 | 62,000 | 42,100 | 30,000 | 18,200 |
| 5 | 36,000 | 21,500 | 29,000 | 12,300 | 29,800 | 16,900 |
- If the project is selected based on the shortest Pay Back Period, which project is recommended (4Points)?
- Based on NPV methods, if the financing rate for ABC is 6.5%, which project is recommended (4Points)?
- If the project is selected based on ROI, which project is recommended (4Points)?
- ABC management has decided to use the Weighted Score method to evaluate projects, too. Following developed table sets the weights for required factors. By assigning the proper scores (using your own previous calculations), find out the most suitable project (4Points):
| Criterion | Weights | Project A | Project B | Project C |
| Risk (Period to get the principal investment back) | 0.3 |
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| Profit (absolute value) | 0.2 |
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| Return on investment (ROI) | 0.25 |
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| Investment | 0.25 |
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| Total | 1 |
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