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Investment alternatives using the Payback and NPV methods

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A client has 3 competing investment alternatives which are anticipated to yield returns as indicated in the table provided below. You are to advise the client on the best investment having considered both the Payback and NPV methods. The NPV method will be at 10%.

You will also need to write a report explaining the reasons for the project you have chosen to invest in and also provide a sensitivity analysis on potential factors that could influence your decision.

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Solution Summary

Investors must often decide between potential investment projects. This exercise demonstrates the techniques that are used to make the best choice between investment alternatives.

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PROJECT EVALUATION
Note to student: I have calculated the payback period and NPV for you for all three projects. I also did some sensitivity analysis on the most profitable project, project B. All of the calculations are on the spreadsheet. The evaluation is below. (It is not necessary, but you may also choose to take the sensitivity analysis further if you like, by recalculating NPV for project B at least two more times, perhaps at 14% and ...

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