Your company Portfolio Manager is convening a review board in the first calendar quarter to consider three mutually exclusive projects.

Initial (year 0) funding will be provided in the current year for the single project selected.

Estimated cash flow projections:

compare projects in three areas: (1) payback period (not considering the cost of capital); NPV sensitivity (see note 1 below); and (3) Internal Rate of Return (IRR). Conduct each analysis and interpret the results.

Show all calculations supporting your recommendation. Calculate NPV to the nearest dollar, IRR to three decimal places, and payback period to one decimal place.

Note 1: Project NPV varies inversely with the cost of funds to perform the project (expressed as the hurdle rate or k in the NPV discount factor formula). Some project NPVs are more sensitive to changes in k than others.


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