Part III. Project Selection

RAVI has recently experienced a surge in demand for one product line. To be more productive, RAVI is analyzing two potential expansion projects. Option B is costlier but provides larger cash inflows. Project A and Project B are mutually exclusive projects. Carlos Ruiz believes this decision's impact will extend to three years. RAVI's required return on this project is $10$ percent. Computations for Option A are provided. Complete the analysis for Option B$,$ which is over $\backslash (\backslash$$ $100,000\backslash )$ more costly$,$ and identify the project that should be selected. Show work to get partial credit when you have an incorrect final answer.

PART A$.$ Capital Budgeting

$1.$ Payback Method $(2$ points; Option $\backslash (\backslash$mathrm$\{$A$\}=2\mathrm{.}04\backslash )$ years$)$:

$2.$ Discounted Payback $(3$ points; Option $\backslash (\backslash$mathrm$\{$A$\}=2\mathrm{.}41\backslash )$ years$)$:

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

$4.$ Profitability Index $(1$ point; Option $\backslash (\backslash$mathrm$\{$A$\}=1\mathrm{.}22\backslash ))$:

$5.$ Internal Rate of Return $(1$ point, Option $\backslash (\backslash$mathrm$\{$A$\}=22\mathrm{.}0\backslash \%\backslash ))$:

$6.$ Modified Internal Rate of Return $(4$ points; Option $\backslash (\backslash$mathrm$\{$A$\}=17\mathrm{.}46\backslash \%\backslash ))$:

$7.$ In the Executive Summary, based on the information given and your computations, identify the project that RAVI should choose. Why? $($Hint: Include discussions of time, yield, and dollars$)(3$ points$)$