Three capital project requests were identified as potential projects for your company to pursue in the upcoming fiscal year. In the meeting to discuss capital projects, the director of finance, your boss, gives you a synopsis of the projects along with this question: Which one of these projects will provide the most shareholder value to the company? She also tells you that other than what is noted in each project scenario, all other costs will remain constant, and you should remember to only evaluate the incremental changes to cash flows.

Project A NPV R IRR Payback Period $ 36,121,599 72.89% 1.43 4.61 $10,000,000 Year Cash Flow Cumulative Cash Flows Present Value factor (8%) Present Value of Cash flows 1 2 3 4 5 6 7 -$10,000,000 $6,807,250 $7,489,750 $7,720,875 $7,981,694 $8,259,222 $8,607,173 $8,938,214 $9,515,716 -$10,000,000 $3,192,750 $4,297,000 $12,017,875 $19,999,569 $28,258,790 $36,865,963 $45,804,178) $55,319,894 1.000000000 0.925925926 0.857338820 0.793832241 0.735029853 0.680583197 0.630169627 0.583490395 0.540268885 $10,000,000 $6,303,009 $6,421,253 $6,129,080 $5,866,783 $5,621,087 $5,423,979 $5,215,362 $5,141,045 PI Cost of Purchase $ Project B NPV IRR Payback Period PL Start Up Cost 20,616,672 86.34% 1.200 3.58 $7,000,000 Year Cash Flows Cumulative Cash Flows Present Value factor (12%) Present Value of Cash Flows 0 1 2 3 4 5 -$8,000,000 $6,580,000 $7,196,000 $7,873,600 $8,618,960 $10,438,856 -$8,000,000 $1,420,000 $5,776,000 $13,649,600 $22,268,560 $32,707,416 1 0.892857143 0.797193878 0.711780248 0.635518078 0.567426856 $8,000,000 $5,875,000 $5,736,6071 $5,604,273 $5,477,505 $5,923,287 Project C NPV IRR Payback Period PI Yearly Cost 6 yr cost $33,470,903.72 90.36% 1.37 4.84 $2,000,000 $12,000,000 Year L Cash Flows Cumulative Cash Flows Present Value factor (10%) Present Value of Cash Flows 0 1 2 3 4 5 -$8,710,521 $6,900,000 $7,935,000 $9,125,250 $10,494,038 $12,068,143 -$8,710,521 $2,437,794 $4,120,057 $10,975,993 $18,143,561 $25,636,929 1 0.909090909 0.826446281 0.751314801 0.683013455 0.620921323 $8,710,521 $6,272,727 $6,557,851 $6,855,935 $7,167,569 $7,493,367 6 $13,878,365 $33,470,904 0.56447393 $7,833,975 Project A NPV R IRR Payback Period $ 36,121,599 72.89% 1.43 4.61 $10,000,000 Year Cash Flow Cumulative Cash Flows Present Value factor (8%) Present Value of Cash flows 1 2 3 4 5 6 7 -$10,000,000 $6,807,250 $7,489,750 $7,720,875 $7,981,694 $8,259,222 $8,607,173 $8,938,214 $9,515,716 -$10,000,000 $3,192,750 $4,297,000 $12,017,875 $19,999,569 $28,258,790 $36,865,963 $45,804,178) $55,319,894 1.000000000 0.925925926 0.857338820 0.793832241 0.735029853 0.680583197 0.630169627 0.583490395 0.540268885 $10,000,000 $6,303,009 $6,421,253 $6,129,080 $5,866,783 $5,621,087 $5,423,979 $5,215,362 $5,141,045 PI Cost of Purchase $ Project B NPV IRR Payback Period PL Start Up Cost 20,616,672 86.34% 1.200 3.58 $7,000,000 Year Cash Flows Cumulative Cash Flows Present Value factor (12%) Present Value of Cash Flows 0 1 2 3 4 5 -$8,000,000 $6,580,000 $7,196,000 $7,873,600 $8,618,960 $10,438,856 -$8,000,000 $1,420,000 $5,776,000 $13,649,600 $22,268,560 $32,707,416 1 0.892857143 0.797193878 0.711780248 0.635518078 0.567426856 $8,000,000 $5,875,000 $5,736,6071 $5,604,273 $5,477,505 $5,923,287 Project C NPV IRR Payback Period PI Yearly Cost 6 yr cost $33,470,903.72 90.36% 1.37 4.84 $2,000,000 $12,000,000 Year L Cash Flows Cumulative Cash Flows Present Value factor (10%) Present Value of Cash Flows 0 1 2 3 4 5 -$8,710,521 $6,900,000 $7,935,000 $9,125,250 $10,494,038 $12,068,143 -$8,710,521 $2,437,794 $4,120,057 $10,975,993 $18,143,561 $25,636,929 1 0.909090909 0.826446281 0.751314801 0.683013455 0.620921323 $8,710,521 $6,272,727 $6,557,851 $6,855,935 $7,167,569 $7,493,367 6 $13,878,365 $33,470,904 0.56447393 $7,833,975