Okoye Bruno Chinanu

SOLUTION: OPQ Inc. A(i) NPV A(ii) Project A Year IRR Project A: Assume 19% Items Cashflow DF (14%) $ Present Value Year Items $ Cashflow DF (19%) Present Value $ $ 0 Initial outlay -120,000.00 1.000 -120,000 0 Initial outlay -120,000.00 1.000 -120,000 1 cashflow 40,000.00 0.877 35,080 1 cashflow 40,000.00 0.840 33,600 2 cashflow 40,000.00 0.769 30,760 2 cashflow 40,000.00 0.706 28,240 3 cashflow 40,000.00 0.674 26,960 3 cashflow 40,000.00 0.593 23,720 4 cashflow 30,000.00 0.592 17,760 4 cashflow 30,000.00 0.498 14,940 5 cashflow 30,000.00 0.519 15,570 5 cashflow 30,000.00 0.419 12,570 NPV 6,130 NPV -6,930 DF (14%) Present Value DF (19%) Present Value Project B Year Project B: Assume 19% Items Cashflow $ Year Items $ Cashflow $ $ 0 Initial outlay -120,000.00 1.000 -120,000 0 Initial outlay -120,000.00 1.000 -120,000 1 cashflow 30,000.00 0.877 26,310 1 cashflow 30,000.00 0.840 25,200 2 cashflow 30,000.00 0.769 23,070 2 cashflow 30,000.00 0.706 21,180 3 cashflow 40,000.00 0.674 26,960 3 cashflow 40,000.00 0.593 23,720 4 cashflow 40,000.00 0.592 23,680 4 cashflow 40,000.00 0.498 19,920 5 cashflow 40,000.00 0.519 20,760 5 cashflow 40,000.00 0.419 16,760 NPV 780 NPV -13,220 DF (17%) Present Value DF (22%) Present Value Project C Year Project C: Assume 22% Items Cashflow $ Year Items $ Cashflow $ $ 0 Initial outlay -200,000.00 1.000 -200,000 0 Initial outlay -200,000.00 1.000 -200,000 1 cashflow 50,000.00 0.854 42,700 1 cashflow 50,000.00 0.819 40,950 2 cashflow 50,000.00 0.730 36,500 2 cashflow 50,000.00 0.671 33,550 3 cashflow 80,000.00 0.624 49,920 3 cashflow 80,000.00 0.550 44,000 4 cashflow 80,000.00 0.533 42,640 4 cashflow 80,000.00 0.451 36,080 5 cashflow 80,000.00 0.456 36,480 5 cashflow 80,000.00 0.369 29,520 NPV 8,240 NPV -15,900 B. Calculating IRR: Where A: lower cost of capital and positive NPV B: Higher cost of capital and negative NPV SUMMARY OF RESULTS PROJECTS METHODS NPV IRR $ % 6,130 16.00 B 780 14.00 C 8,240 19.00 Project Ranking & Selection C C A Overall conclusion: Project C should be selected based on NPV and IRR figures and criteria respectively. This is because it produced the best result among the projects.