Determining the investment alternatives

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Consider the following 10 year investment alternatives: the first investment project will provide you with a $50,000 cash flow each year for the next five years; then the cash flows will increase by 5% per year for the next five years. The second investment project will provide you with a $60,000 cash flow each year for the next five years; then the cash flows will decrease by 5% per year for the next five years. The third investment project will provide you with the following cash flows.

Years 1 2 3 4 5 6 7 8 9 10

Cash Flows ($K) 20 20 0 50 50 0 90 90 90 500

a) Make a table showing the projected cash flows for each investment project?

b) Assuming that your required rate of return on projects of similar risk are 10%, 12% and 15% for the first, second and third project respectivlely, what is the maximum price that you would be willing to pay for each investment project. Use the NPV function.

c) Suppose that the required investment of each project is $300k, $350K, $320K. What implied annual rate of return is associated with each project? Which project should you select and why?

Reference no: EM131734726

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