Project evaluation using npv as well as irr

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Reference no: EM1311542

Project evaluation using NPV as well as IRR.

Consider the following investment projects:

projects cash flows

n

A

B

C

D

0

($2,000)

($3,000)

($1,000)

 

1

1,000

4,000

1,400

($1,000)

2

1,000

 

-100

1,090

3

1,000

 

 

 

*i

23

33.33%

32.45%

9%

Suppose that you have only $3,500 available at period 0.  Neither additional budgets nor borrowing are allowed in any future budget period.  However, you can lend out any remaining funds (or available funds) at 10% interest per period.

1. If you want to maximize the future worth at period 3, which projects would you select?  What is the future worth (the total amount available for lending at the end of period 3)?  No partial projects are allowed.

2. Suppose in (a) that, at period 0, you are allowed to borrow $500 at an interest rate of 13%.  The loan has to be repaid at the end of year 1.  Which project would you select to maximize your future worth at period 3?

3. Considering a lending rate of 10% and a borrowing rate of 13%, what would be the reasonable MARR for project evaluation?

Reference no: EM1311542

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