Problem
You have the chance to participate in three projects that produce the following cash flows (C1 is the cash flow in one year, C2 in two years, etc.):
|
Project
|
C1
|
C2
|
C3
|
C4
|
C5
|
|
A
|
500
|
500
|
500
|
500
|
500
|
|
B
|
1000
|
1000
|
1500
|
0
|
1000
|
|
C
|
1500
|
0
|
0
|
0
|
1000
|
a. Considering that the initial investments are: Project A: 1,000
Project B: 2,000
Project C: 1,000
If the cost of capital is 15%, compute the NPV for each project. Calculate the payback period of each project. Compute the IRR of each project. Which project do you pick, and why?
b. Considering that the initial investments are different for each project, as follows: Project A: 500
Project B: 2,500
Project C: 1,000
How does your analysis change? Which project do you pick?