Reference no: EM13214398

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.