Question

cherating 55,500 year former. Assume that Wing has identified the following the w ally c are projects Project Stan and Project Pasjid carn any cash flows after Year 4, while Project Turkiela will keep generating $5,500 evry year forever. the required return is 11 percent. Project Year Project Project Stan Posylnaya Turkiela $ (43,500) $ (43,500) $ (43,500) $ 21,400 6,400 $ 5,500 $ 18,500 $ 14,700 5,500 $ 13,800 $ 22,800 $ 5,500 4 $ 7.600 $ 25,200 $ 5,500 5,500 5,500 8:WN- 19. Between Project Stan and Project Posylnaya, which project should the company choose, according to the NPV rule? Show your work and explain to receive any credit. Round your answer to three decimal places. (7 points) 20. Between Project Stan and Project Posylnaya, which project should the company choose, according to the payback period rule? Show your work and explain to me any credit. Round your answer to three decimal places. (7 points) this one 21. Among Project Stan, Project Posylnaya, and Project Turkiela, which project should the company choose, according to the NPV rule? Show your work and explain to receive any credit. Round your answer to three decimal places. (7 points)

Answer 1

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NPV of Stan and Posylnaya is calculated using NPV function in Excel.

NPV of Turkiela = present value of perpetual cash inflow - initial investment.

present value of perpetual cash inflow = annual cash inflow / required return.

present value of perpetual cash inflow = $5,500 / 11% = $50,000.

NPV of Project Turkiela = $50,000 - $43,500 = $6,500.000.

NPV of Project Stan = $5,891.091.

NPV of Project Posylnaya = $7,467.800.

B7 foc =NPV(11%,B3:36) +B2 C D E 1 Year Stan Posylnaya 0 ($43,500) ($43,500) 1 $21,400 $6,400 2 $18,500 $14,700 3 $13,800 $22,800 4 $7,600 $25,200 7 NPV $5,891.091 $7,467.800

C7 А 1 Year fx =NPV(11%,C3:C6)+C2 в DE Stan Posylnaya 0 ($43,500) ($43,500) 1 $21,400 $6,400 2 $18,500 $14,700 3 $13,800 $22,800 4 $7,600 $25,200 $5,891.091 $7,467.800 7 NPV

Project Posylnaya should be chosen as it has the highest NPV.