Option #2: Capital Budgeting Analysis
Suppose you are the financial manager of a firm considering thefollowing five projects.
| ProjectA | ProjectB | ProjectC | ProjectD | ProjectE |
| InitialInvestment | -$10,000 | -$15,000 | -$14,000 | -$6,000 | -$1,500 |
| Year1 | $5,000 | $5,000 | $6,000 | $4,000 | $1,000 |
| Year2 | $4,000 | $5,000 | $4,000 | $2,000 | $250 |
| Year3 | $2,000 | $5,000 | $3,500 | $2,000 | $100 |
| Year4 | $1,000 | $5,000 | $2,500 | $2,000 | $100 |
| Year5 | | $5,000 | $2,000 | | $100 |
| Year6 | | | $2,000 | | $100 |
- Calculate the Payback Period for each project.
- Calculate the NPV for each project, assuming a discount rate of11%.
- Calculate the IRR for each project.
- Which projects should the firm implement based on your analysisIf the projects are mutually exclusive? What if they areindependent? Write an email to your CFO explaining your rationaleproving the choices based on the considerations of shareholdervalue. Assume there is no capital constraint and any desiredprojects can be funded.
