Assignment:
Here is the project: Spend $200,000 to increase plant capacity for Product B. The new capacity will cause profits to increase by $200,000 per year in the first year. The sales forecast is estimated to be 80% accurate.
The other project is Upgrade the MIS system for the company. There is a 100% certainty I will have manpower savings of $50,000 per year. The cost of the system is $400,000 of which $300,000 must be paid immediately and the remaining balance is projected to be paid at the end of the installation one year from now.
Project: Spend $500,000 in research and development to re-engineer product A whose patent is going to expire in two years. This product contributes $125,000 of after-tax profit per year. If the R& D project is successful, you will create $100,000 of after-tax profit for ten more years. Probability of success of the project is 75%