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Evaluate capital budgeting projects and its discount rate

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Question - Address all parts of the problem below. You need to show relevant calculations for each part of the problem, and those calculations should be done using Excel functions/formulas. For any time value computations, you must use the FV, PV, PMT functions in Excel, as appropriate.

Capital Budgeting -

A company is considering three capital budgeting projects. Data relative to each is given below. Each project has a life of 5 years. The company uses the Net Present Value (NPV) method to evaluate capital budgeting projects and its discount rate is 10%.

 

Project A

Project B

Project C

Initial cash outlay (cost)

-$5,000,000

-$6,000,000

-$2,500,000

Cash inflows per year

$1,500,000

$1,800,000

$600,000

Residual value

$500,000

0

$100,000

1. If the projects are mutually exclusive, which, if any, should the company accept? Why?

2. If the projects are independent, which, if any, should the company accept? Why?

3. One of the company's managers states "To me, no matter what else we do, Project C needs to be our first choice because it has the lowest initial cost of $2,500,000." Comment on this manager's proposal, considering the concepts of NPV and Payback Method.

Reference no: EM132188481

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