Question 1: COMPARING TWO PROJECTS UNSING NET PRESENT VALUE (NPV) Year 0 Year 1 Year 2 Year 3 Year 5 Year 6 Total Interest rate 15% (S700,000) Project A Required Outflow Inflow Net Inflow NPV $225,000 $225,000 $225,000 $225,000 $225,000 $225,000 $225,000 $225,000 $225,000 $225,000 (S700,000) 1.125.000 $425,000 $54,234.90 15% Project B Required Outflow Inflow Net Inflow NPV (S400,000) $110,000 $110,000 $110.000 $110,000 $110,000 $110,000 $110.000 $110,000 $110,000 $110,000 ($400,000) S550,000 S150,000 (831.262.94) Questions: Based on the information above, identify which project (Project A or B) should be accepted? Explain why. By changing the figures in the excel template (above), assume the interest rate for Project A fell to 13%, and Cash outflow (The initial investment) was $950,000, Cash Inflows was $350,000 per annum for the 6 years, and Net inflows was also $250,000. For Project B, assume interest rate also fell to 13% but Cash outflow. Inflow and Net Intlows remain the same. What is the new NPV for each of the project? Would you reccommend that any of these project be accepted by the investor? Why/Why not? Answer Question 2: Comparing Two Projects Using the Payback Method Project A Project B Investment Annual savings $700.000 $225.000 S400,000 S110,000 Payback period 3.1 years 3.6 years Rate of return 32.1% 27.5% Base on the Payback calculations above, which project would you accept? Why. Assume for project A the investment was $980,000 and annual savings was $210,000 and for Project B Investment was $850,000 and Annual Questions savings was $300,000. Which project would you recommend after the changes? Why? How do the changes in Investments and Annual Savings affect the Rate of Returns for each project? What does the changes in Rate of Return mean to the investor