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Carlson Development owns a prime parcel of land that can be developed into a residential, commercial, or industrial complex. Carlson plans to manage each of the projects for seven years and then cash out. After considerable research, Carlson estimates that cash flows from the three alternative projects are as follows: Cash Flows In Millions Project Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Residential (25.0) 2.0 2.0 2.0 2.0 2.0 2.0 52.0 Commercial (26.6) 6.0 6.0 6.0 6.0 6.0 6.0 16.0 Industrial (21.0) 4.0 4.0 4.0 4.0 4.0 4.0 14.0 Carlson estimates that all three projects have an opportunity cost of capital of 15% per year. Calculate the NPV and IRR on the three projects identify which (if any) project should Carlson select? Now assume that the opportunity cost of capital is 17% instead of 15%. Calculate the NPV and the IRR for each of the three projects based on the new 17% opportunity cost of capital and identify which (if any) project should Carlson select?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91697677

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