Cash-flows for Projects A, B and C
|
Year
|
Project A
|
Project B
|
Project C
|
|
0
|
-$200,00
|
-$175,000
|
-$200,000
|
|
1
|
$5,000
|
$40,000
|
$90,000
|
|
2
|
$10,000
|
$40,000
|
$80,000
|
|
3
|
$20,000
|
$40,000
|
$70,000
|
|
4
|
$30,000
|
$40,000
|
$60,000
|
|
5
|
$40,000
|
$40,000
|
$50,000
|
|
6
|
$60,000
|
$40,000
|
$40,000
|
|
7
|
$90,000
|
$40,000
|
$30,000
|
Group A: Company's cost of capital is 8%.
Group B: Company's cost of capital is 9%.
Group C: Company's cost of capital is 10%.
Group D: Company's cost of capital is 11%.
Group E: Company's cost of capital is 12%.
You have been recently hired by REMIX Pvt. Ltd. The company is considering investment in one of the above opportunities (A,B,C). Your manager requests you to evaluate cash-flows of all these projectsusing following criteria and submit your report:
1. Find ARR and Payback.
2. Calculate the NPV, IRR and Profitability Index for all projects.
3. Rank all projects in order of their desirability and recommend which project is most desirablebet
6. Explain how cash flow pattern of each project affects its profitability and place on the ranking grid
5. Explain strengths and weaknesses of each project evaluation modeland suggest which one is most desirable and why.
6. Describe accounting income and cash-flows and explain differences between the two.
N.B.
1. For calculating ARR and Payback please consider cash-flows for projects A, B and C as surrogate for accounting income.
2. If you are in group A you will use 8% discount rate, in group B 9% and so on.