Question $2(10$ points$)$

Project Analysis Results

Project $1$

Project $2$

Project $3$

Initial Investment

$$260,000$

$$265,000$

$$275,000$

Required Rate of Return

$10\%$

$10\%$

$10\%$

NPV

$$46\mathrm{.}754$

$$44,116$

$$48,255$

IRR

$17\mathrm{.}09$

$16\mathrm{.}72\%$

$17\mathrm{.}08$

MIRR

$14\mathrm{.}27$

$14\mathrm{.}03\%$

$14\mathrm{.}23$

Payback

$2\mathrm{.}93$ years

$2\mathrm{.}93$ years

$2\mathrm{.}90$ years

Additional information:

$1.$ Our firm's management typically likes projects with a payback of $3$ years or less.

$2.$ Projects $1$ and $3$ have non$-$normal cash flows.

In a prior report regarding the proposed expansion of our firm's existing product lines, our management team clearly stated the proposed expansion could not be completed with the existing fixed assets and, as a result, additional fixed assets would be required to accomplish this expansion $($growth$).$ We are considering three alternative projects that are mutually exclusive. The results and notes from the basic analysis for each project are provided in the table above for your review and recommendation to management.

Explain which project you will recommend to management and provide specific data items from the table to support your position.

As a side note: You MUST explain clearly and completely which decision metrics you used to make your recommendation and why.