Corporate Finance 800-1000 words APA format
Strategic decision makers are required to be able to evaluate projects based on the long-term objectives of the firm as well as the project’s ability to earn the company additional compensation. The 3 main tools used to make this evaluation are the pay-back period, net present value (NPV), and internal rate of return (IRR).
Year | Project #1 | Project #2 | Project #3 |
0 | ($30,000) | ($32,000) | ($35,000) |
1 | $11,000 | $15,000 | $11,000 |
2 | $11,000 | $14,000 | $11,000 |
3 | $11,000 | $11,000 | $11,000 |
4 | $11,000 | $2,000 | $11,000 |
5 | $11,000 | $500 | $11,000 |
Scenario | NPV Rate |
1 | 5% |
2 | 5.5% |
3 | 6% |
Using the data in the tables above, answer the following questions:
- Calculate the NPV for each project using each scenario’s NPV rate. Show your work.
- Calculate the pay-back period for each project. Show your work.
- Calculate the IRR for each project. Show your work.
- Which project would the company select using the NPV method in scenario 1? Explain your answer.
- Which project would the company select using the NPV method in scenario 2? Explain your answer.
- Which project would the company select using the NPV method in scenario 3? Explain your answer.
- Which project would the company select using the pay-back period? Explain your answer.
- Which project would the company select using the IRR method? Explain your answer.
