What is the total cash flow of project

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Problem: The average annual rate of return for your start up company for the past years has been 20% and has made you rich. To maintain this growth, you are evaluating two projects: the first to expand the production capacity and the second is open a new office. You have developed the following table:

Year Expansion New office

(initial outlay) 3,500,000 500,000

1 1,500,000 250,000

2 2,000,000 350,000

3 2,500,000 375,000

4 2,750,000 425,000

Answer the following questions:

  1. What is the total cash flow of each project?
  2. What is the traditional payback period of each and which would be selected based on this value?
  3. What is the discounted payback period of each and which would be selected based on this value?
  4. What is the NPV and which would be selected based on this rate?
  5. What is the IRR of each project and which would be selected on this rate?
  6. What is the PI of each project of each project and which would be selected on this rate?
  7. You can only afford to undertake one project. Which one and why (which goal/rule are you using?)

Reference no: EM132417994

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