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Cowboy Corp. is about to expand its operations and they have several projects with various cash...

Cowboy Corp. is about to expand its operations and they have several projects with various cash flows available in Excel upload file. Each project has an 8-year life and the firm has a cost of capital at 8%. The firm has $15,000 for the expansion and will invest in multiple projects with that capital constraint.

1. Calculate NPV for each project

2. Find the project combination that maximizes total NPV for Cowboy Corp. and calculate total capital spending

3. Find the optimum combination under following constraints; Project A and C can only be invested together and at least one out of Project E, F or G must be invested.

Cost of capital 8%
YEAR 0 1 2 3 4 5 6 7 8
Project A -5000 1000 1250 1000 900 850 750 700 700
Project B -3000 400 600 800 600 600 600 600 600
Project C -4500 1200 1500 1200 1200 500 500 300 300
Project D -2000 450 450 450 400 400 300 300 200
Project E -7500 1350 1350 1350 1350 1350 1350 1350 1350
Project F -8000 2000 2000 2000 1500 1500 1500 500 100
Project G -6500 1400 1400 1200 1200 900 900 900 900

Solutions

Expert Solution

YEAR 0 1 2 3 4 5 6 7 8 Total
Project A -5000 1000 1250 1000 900 850 750 700 700
Project B -3000 400 600 800 600 600 600 600 600
Project C -4500 1200 1500 1200 1200 500 500 300 300
Project D -2000 450 450 450 400 400 300 300 200
Project E -7500 1350 1350 1350 1350 1350 1350 1350 1350
Project F -8000 2000 2000 2000 1500 1500 1500 500 100
Project G -6500 1400 1400 1200 1200 900 900 900 900
Cost of capital @8% (1/1.08)^1 (1/1.08)^2 (1/1.08)^3 (1/1.08)^4 (1/1.08)^5 (1/1.08)^6 (1/1.08)^7 (1/1.08)^8
Cost 1 0.925925926 0.85733882 0.793832241 0.735029853 0.680583197 0.630169627 0.583490395 0.540268885
Project A -5000 925.9259259 1071.673525 793.832241 661.5268675 578.4957175 472.6272202 408.4432767 378.1882192 290.7129933
Project B -3000 370.3703704 514.4032922 635.0657928 441.0179117 408.3499182 378.1017761 350.0942372 324.1613307 421.5646293
Project C -4500 1111.111111 1286.00823 952.5986892 882.0358234 340.2915985 315.0848134 175.0471186 162.0806654 724.25805
Project D -2000 416.6666667 385.8024691 357.2245085 294.0119411 272.2332788 189.0508881 175.0471186 108.0537769 198.0906477
Project E -7500 1250 1157.407407 1071.673525 992.2903013 918.787316 850.7289963 787.7120336 729.3629941 257.962574
Project F -8000 1851.851852 1714.677641 1587.664482 1102.544779 1020.874796 945.2544403 291.7451976 54.02688845 568.6400756
Project G -6500 1296.296296 1200.274348 952.5986892 882.0358234 612.5248773 567.1526642 525.1413557 486.2419961 22.26605061
Company as 15000 to invest
IF A and C both and remaining invested can be in B and D
Investment amount NPV
A 5000 290.7129933
c 4500 724.25805
B 3000 421.5646293
D 2000 198.0906477
14500 1634.62632
This alternative is good
If invested in F then
Investment amount NPV
F 8000 568.6400756
D 2000 198.0906477
B 3000 421.5646293
13000 1188.295353

2nd alternative is not good

1st alternative is good for investment

jeff jeffy answered 1 year ago
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