Which project would you choose for your company

Reference no: EM131943178

Question: Based on the valuations below, which Project (A, B, or C) would you choose for your company and WHY? WACC 12.04%

Project A: WACC 12.36%

Project A's NPV data equals the Net Operating Cash Flows of -$4,919,284, the Internal Rate of Return (IRR) demonstrates that the risk of the project is 5.36%, the Payback Period is 5.24 determined by the need to take the year added to the cumulative cash flows divided by the Net Operating Cas Flows, and the Profitability Index is 0.81. On the other hand, with a 10% Reduction in Price, the NPV data equals the Net Operating Cash Flows of $0.00, the Internal Rate of Return (IRR) demonstrates that the risk of the project is 0%, the Payback Period is 6 determined by the need to take the year added to the cumulative cash flows divided by the Net Operating Cas Flows, and the Profitability Index is 1. Moreover, with a 10% Reduction in Sales Volume, the NPV data equals the Net Operating Cash Flows of $2,550,000, the Internal Rate of Return (IRR) demonstrates that the risk of the project is 2.72%, the Payback Period is 5.6 determined by the need to take the year added to the cumulative cash flows divided by the Net Operating Cas Flows, and the Profitability Index is 1.1.

Project B: WACC 12.38%

Project B's NPV data equals the Net Operating Cash Flows of $20,814,000, the Internal Rate of Return (IRR) demonstrates that the risk of the project is 17.78%, the Payback Period is 4.27 determined by the need to take the year added to the cumulative cash flows divided by the Net Operating Cas Flows, and the Profitability Index is 1.77. On the other hand, with a 10% Reduction in Price, the NPV data equals the Net Operating Cash Flows of -$26,755,517, the Internal Rate of Return (IRR) demonstrates that the risk of the project is 20.51%, the Payback Period is 4.08 determined by the need to take the year added to the cumulative cash flows divided by the Net Operating Cas Flows, and the Profitability Index is 0.14. Moreover, with a 10% Reduction in Sales Volume, the NPV data equals the Net Operating Cash Flows of $17,212,500, the Internal Rate of Return (IRR) demonstrates that the risk of the project is 14.87%, the Payback Period is 4.51 determined by the need to take the year added to the cumulative cash flows divided by the Net Operating Cas Flows, and the Profitability Index is 1.64.

Project C: WACC 12.41%

Project C's NPV data equals the Net Operating Cash Flows of -$26,755,517, the Internal Rate of Return (IRR) demonstrates that the risk of the project is 20.51%, the Payback Period is 4.08 determined by the need to take the year added to the cumulative cash flows divided by the Net Operating Cas Flows, and the Profitability Index is 0.14. On the other hand, with a 10% Reduction in Price, the NPV data equals the Net Operating Cash Flows of -$26,706,488.13, the Internal Rate of Return (IRR) demonstrates that the risk of the project is 6.26%, the Payback Period is 5.32 determined by the need to take the year added to the cumulative cash flows divided by the Net Operating Cas Flows, and the Profitability Index is 0.11. Moreover, with a 10% Reduction in Sales Volume, the NPV data equals the Net Operating Cash Flows of -$26,872,276, the Internal Rate of Return (IRR) demonstrates that the risk of the project is 16.76%, the Payback Period is 4.37 determined by the need to take the year added to the cumulative cash flows divided by the Net Operating Cas Flows, and the Profitability Index is 0.13.

Reference no: EM131943178

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