Questions COMPARING TWO PROJECTS UNSING NET PRESENT VALUE (NPV) Year 0 Year 1 Year 2 Interest rate 159 Year 3 Year 5 Year 6 Total (5700,000) Project A Required Outlow Inbow Net Inflow NPV $225,000 $225,000 $225,000 $225.000 $225,000 $225,000 $225,000 5225,000 $225,000 $225,000 ($700,000) 1,125.000 $425,000 $54,234.90 159 5.400.000 Project Rewired Outflow Intlow Net Inflow NPV $110.000 $110,000 $110,000 S110,000 $110,000 $110,000 S110,000 $110,000 S110,000 $110,000 (5.400.000 S350,000 SI50.000 IS1264 Questions Based on the information above, Identity which project (Project A or ) should be accepted? Explain why By changing the figures in the exoel template (above), assume the interest rate for project A fell to 13%, and Cash outflow (The initial investment) was 5950,000, Cash flows was $350,000 per annum for the years, and Net intlows was to $250,000. For Project Bassume 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 recommend that any of these project be accepted by the investod Why/Why not? Answer Question 2 Comparing Two Projects Using the Payback Method Project A Projects Investment Annual saving 5700,000 $225,000 5400,000 $110,000 Payback period 3.1 years 36 years Rate of return 32.196 27.5% Base on the Payback calculations above, which project would you accept? Why, Assume for project the investment was $950,000 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 Reham means to the investor