HOMEWORK #$1$ PROJECT SELECTION MODELS AND DECISION TREE ANALYSIS A project manager is working on justification of a project. Since very little information is known about the project, some rough estimates have been gathered. Following table is prepared to show the cash inflow and outflow for the following years: $1.$ What is the payback period for this project? $2.$ If the required rate of return is $10\%,$ is the project mentioned above acceptable? Use NPV$.3.$ Calculate profitability index to determine if the project acceptable. Use $10\%$ interest rate. $4.$ Assume that you are going to select one of the two projects and applied different selection methods. For each method, explain which project is preferable? $5.$In a project, an initial investment of $$8,300$ equipment is expected to generate net cash inflow of $$3,400,$$$4,000,$$$5,800$ and $$2,050$ at the end of first, second, third and fourth year respectively. At the end of the fourth year, equipment would be sold for $$900.$ Calculate the net present value of the investment if the discount rate is $18\%$ and explain if the project is acceptable. $6.$ In the previous question, assume that there will be $5\%$ inflation rate in the next four years. Reconsider if the project is acceptable or not? $7.$ You are asked to choose between two projects A or B based on the highest gain $($or the lowest loss$).$ A will cost U$.$S$.$ $$800,000$ and B will cost U$.$S$.$ $$600,000.$ There is a $60\%$ chance that project A will be successful, which will result in a gain of U$.$S$.$ $$2,000,000.$ If project A fails there will be a loss of U$.$S$.$ $$700,000.$ There is a $70\%$ project B will be successful. If Project B fails there will be a loss of U$.$S$.$ $$800,000.$ Based on this information: a$.$ Draw the decision tree of the projects. b$.$ What is the minimum gain of project B to be a better option than project A $?$