You have been asked to compare three alternative investments and make a recommendation.
- Project A has an initial investment of $5 million, and after-tax cashflows of $ 2.5 million a year for the next five years.
- Project B has no initial investment, has after-tax cash flows of $ 1 million a year for the next ten years, and a salvage value of $2 million (from working capital).
- Project C has an initial investment of $10 million, another investment of $5 million in ten years, and after-tax cashflows of $ 2.5 million a year forever.
The discount rate is 10% for all three projects.
Which of the three projects would you pick? Why?