Part III. Project Selection Perez Construction has recently experienced a surge in demand. In order to be more productive, Perez Construction is analyzing two potential expansion projects. Option B is costlier but provides larger cash inflows. Project A and Project B are mutually-exclusive projects. Sophia Perez believes that the impact of this decision will extend out to three years. Perez Constructions required return on this project is 10 percent. Computations for Option A are provided. Complete the analysis for Option B, which is over $100,000 more costly, and identify the project that should be selected. Show work to get partial credit in situations where you have incorrect final answer.

Option A

Initial Investment: $310,000

Year Cash Inflow

1 $151,790

2 $151,790

3 $151,790

Option B

Initial Investment: $440,000

Year Cash Inflow

1 $210,000

2 $190,000

3 $180,000

PART A. Capital Budgeting

1. Payback Method (3 points; Option A = 2.04 years):

2. Discounted Payback (4 points; Option A = 2.41 years):

3. Net Present Value (2 points; Option A = $67,479):

4. Profitability Index (1 point; Option A = 1.22):

5. Internal Rate of Return (1 point, Option A = 22.0%):

6. Modified Internal Rate of Return (5 points; Option A = 17.46%):

7. In the Executive Summary, based on the information given and your computations, identify the project should be chosen by Perez Construction. Why? (Hint: Include discussions of time, yield, and dollars) (3 points)