Question

. For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For each capital budgeting decision tool, indicate if the project should be accepted or rejected, assuming that each project is independent of the others. Important Note: The venture capital folks have a firm maximum payback period of four years.         

Project A= Required rate of Return= 16.30%

Project B= R= 12.50%

Project C= R= 15.35%

Project D= R= 17.25%

    

Expected cash flows for the four potential projects that Avalon is considering as shown below:               

Year	Project A	Project B	Project C	Project D
0	-$7,250,000	-$8,500,000	-$6,500,000	-$4,500,000
1	$2,000,000	$1,000,000	$2,000,000	$2,000,000
2	$2,500,000	$1,500,000	$2,000,000	$2,000,000
3	$3,000,000	$2,000,000	$2,500,000	$1,000,000
4	$1,000,000	$2,000,000	$2,500,000	$1,000,000
5	$1,000,000	$1,600,000	$2,000,000	$500,000
6	$1,000,000	$1,600,000		$500,000
7		$1,500,000
8		$1,500,000
9		$1,500,000
10		$1,500,000

I have provided a suggested template for your final answers. Below the grid (and/or next page) is where you should show all your required backup calculations.     

		Year	Project A	Project B	Project C	Project D
		Req. Return (use 2 decimals xx.xx%)
		NPV (to nearest $1)
		NPV accept/reject
		IRR (xx.xx%)
		IRR accept/reject
		PI (show 2 decimals)
		PI accept/reject
		Payback Period (x.x years)
		Payback accept/reject

Answer 1

Answer:

Workings:

1. The above excel with 'show formula' is as follows:

2. Calculation of payback period:

3. The above excel with 'show formula' is as follows: