Question

You are a senior manager at Nittany Aircraft and have been authorized to spend up to $550,000 for projects. The

three projects you are considering have the following characteristics:

Project A: Initial investment of $400,000. Cash flow of $175,000 at year 1 and $280,000 at year 2. This is a plant expansion project, where the required rate of return is 10 %.

Project B: Initial investment of $200,000. Cash flow of $195,000 at year 1 and $105,000 at year 2. This is a new product development project, where the required rate of return is 20 %.

Project C: Initial investment of $150,000. Cash flow of $160,000 at year 1 and $50,000 at year 2. This is a market expansion project, where the required rate of return is 20 %.     

Assume the corporate discount rate is 10 %.

What is the IRR of project A?  8.35 What is the NPV of project A?  -9504.13 What is the PI of project A?  .98

What is the IRR of project B?  36.08 What is the NPV of project B? 35416.67 What is the PI of project B? 1.18

What is the IRR of project C?  31.93 What is the NPV of project C?  18055.56 What is the PI of project C?  1.12

The answers are included, please include the formulas in the answers so I can figure out where I went wrong.

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