Current year

(5,000) $ 1,000 $ 2,000 $ 4,000 Which project is the most preferable

Consider the following projects:

Project C0 C1 C2 C3

A $ (5,000) $ 3,000 $ 2,000 $ 1,000

B $ (5,000) $ 3,000 $ 3,000 $ 3,000

C $ (5,000) $ 1,000 $ 2,000 $ 4,000

Which project is the most preferable? Why?

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Opportunity cost of capital equal to 10%:

Project C0 C1 C2 C3 C4

A $ (4,000) $ 2,000 $ 2,000 $ 2,000 $ –

B $ (3,000) $ – $ 1,000 $ 2,000 $ 3,000

C $ (6,000) $ 3,000 $ – $ 2,000 $ 1,000

a) NPV of Project A?

b) NPV of Project B?

c) NPV of Project C?

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C0 C1 C2

$ (100) $ 200 $ (84)

What is the minimum number of IRRs this project could have?

Maximum number of IRRs this project could have?

List out each IRR that you find for this project. If  no IRR exists for this project, why?

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Project C0 C1 C2 IRR

The Liyyo $ (500,000) $ 341,000 $ 300,000 18.73%

The Young $ (200,000) $ 140,000 $ 160,000 31.05%

Opportunity cost of capital is 8%.

Which project will you accept and why?

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Project C0 C1 IRR NPV

Ping $ (15,000) $ 25,000 66.67% $ 7,727.27

Pong $ (25,000) $ 35,000 40.00% $ 6,818.18

Opportunity cost of capital is 10%.

Profitability index for each project?.

Why is the “Profitability Index Rule” used to select the superior project.

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The company earned $1,800,000 of NI during its current year. The total amount of Net Assets that were used in the company’s operations during the year totaled $20,000,000. The cost of capital for this particular company is 10%.

Net Return on Investment (ROI) during the current year of operations?

Economic Value Added (EVA) during the current year of operations.

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You are about to purchase an American-style Pepsi call option that is exercisable at $800 per share. You are purchasing an option for one single share of Pepsi stock. The premium that you will pay for your option is $61.30.

What intrinsic value does this option have today if Pepsi’s stock price is trading for $700 per share? And why?

Suppose Pepsi’s stock price is currently trading at $1,000 per share. If you exercise your option right now, then what profit (or loss) will you realize if you immediately sell your single share of Pepsi stock?  Trading price remains $1,000 per share when you sell your single share. Your response to this item should include the word “profit” or “loss” and it should also include a dollar amount.

Must provide all work via Excel.