NPV methodology
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Using NPV methodology rank the 4 projects from Most to least desirable for company profits. should any project be avoided? why?
Project 1). Requires an initial cash expenditure of $ 50,000, has a 10% cost of capital, and will return 5 years of income flow in the amount of $ 15,000 each year.
Project 2). Will require an initial outlay of $ 50,000, has a 10% cost of capital, will return nothing for 5 years, but in the 6th year will return a lump sum payment of $ 100,000.
Project 3). Requires an investment of $ 50,000 and returns $ 10,000 per year for the first 4 years and $ 40,000 per year for the fifth year. The cost of equity capital in this case is also 10%.
Project 4). Requires an investment of $ 50,000 and returns $ 20,000 for two years, loses $ 20,000 the third year and returns a positive $ 20,000 per year for the fourth and fifth years. The opportunity cost of capital is 10%.
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NPV methodology is examined.
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