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As a Division Manager you have $250,000 to invest in a new project. The Maverick Project...

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Finance

As a Division Manager you have $250,000 to invest in a newproject. The Maverick Project Teams says that if you invest withthem the company will receive returns of $70,000 after a year,$120,000 after two years and $120,000 after three years. The BullProject Team says that if you invest with them the company willreceive nothing for the first two years and then $370,000 at theend of the third year. The current annual discount rate is 6%.Create a worksheet that determines which project team offers thebetter financial return on the investment.

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4.5 Ratings (768 Votes)

Maverik project team
a b a*b
Year Cashflow PV factor 6% [1/(1+r)]^n PV
0       (250,000.00) 1.000            (250,000.00)
1           70,000.00 0.943                66,037.74
2         120,000.00 0.890              106,799.57
3         120,000.00 0.840              100,754.31
NPV of the project                23,591.62
Bull project team
a b a*b
Year Cashflow PV factor 6% [1/(1+r)]^n PV
0 (250,000.00) 1.000      (250,000.00)
1                     -   0.943                        -  
2                     -   0.890                        -  
3    370,000.00 0.840        310,659.13
NPV of the project          60,659.13
Conclusion
NPV of bull project team is higher than maverik project team
So company should go with bull project team
Notes:
NPV = Discounted inflow - Initial investment
Rate of return is 6%
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