Question 1: COMPARING TWO PROJECTS UNSING NET PRESENT VALUE (NPV) Year 0 Interest rate 15% Year 1 Year 2 Year 3 Year 5 Year 6 Total Project A Required Outflow Inflow Net Inflow NPV ($ 700,000) $225,000 $225,000 $225,000 $225,000 $225,000 $225,000 $225,000 $225,000 ($700,000) $225,000 1,125,000.00 $225,000 $425,000 $54,234.90 15% Project B Required Outflow Inflow Net Inflow NPV (5400,000) $110,000 $110,000 $110,000 $110,000 $110,000 $110,000 $110,000 $110,000 $110,000 $110,000 ($400,000) $550,000 $150,000 (531,262.94) 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 Questions: 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 Inflows remain the same. What is the new NPV for each of the project? Would you receommend that any of 1 2 Question 2: Comparing Two Projects Using the Payback Method 3 4 5 Project A Project B 6 27 Investment $700,000 $400,000 8 Annual savings $225,000 $110,000 29 30 Payback period 31 32 Rate of return 32.1% 27.5% 33 34 Base on the Payback calculations above, which project would you accept? Why. Assume for project A the 35 investment was $980,000 and annual savings was $210,000 and for Project B Investment was $850,000 and Annual 36 Questions savings was $300,000. Which project would you recommend after the changes? Why? How do the changes in Answe 37 Investments and Annual Savings affect the Rate of Returns for each project? What does the changes in Rate of 38 Return mean to the investor? 3.1 years 3.6 years