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Salt at Pear Computer Services: NPV, IRR and Project Evaluation

I need help with the following questions based on the details given in the attached file:

1. Salt has requested that all quantifiable data, upon which he will base his choice of project, be compiled and presented to him. The data needed are shown in the following table.
Complete the missing entries for project C.

2. Comment upon the relative riskiness of projects.

3. Determine the expected net present value of each project assuming that a 12% cost of capital is appropriate for Pear Computer Services.

4. Calculate the internal rate of return on each project based upon expected values of the inflows and outflows.

5. With the expected net cash flow patterns, could the net present value (NPV) and the internal rate of return (IRR) result in conflicting rankings of project choice?

6. Assume that Salt instructs you to use different risk-adjusted discount rates for each project, and that he suggests that 10% is reasonable for project A, 12% for B and 24% for C.
Calculate the risk-adjusted net present values for each project. Do conflicting rankings in terms of the risk-adjusted NPV and IRR occur? If so, why?

7. Which of the projects, if any, do you think Salt should accept:
(a) If he operates strictly with the shareholders' interest in mind,
(b) considering his personal situation?


Solution Summary

This solution shows step-by-step calculations in an Excel file to determine the NPV, IRR and provide an evaluation of the project and whether if Salt should accept the proposal.