F2010 Exam 3

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Texas A&M University *

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341

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Finance

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Jan 9, 2024

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FINANCE341 -Fan2016 ~ Print Name:__ T WXAMA3 - Form A o Directions: Choose the best answer. (Keep 4 “decimiils uizlesfl‘fdld otherwise.) 1 Hannah Abalos is copsidering sponsoring a pavilion at the upcoming World's Fair. The pavilion roject's cash flows-are as follows: - = = - proj _ s P (.79, ¢s, 433y = 2.33797, " Year Net Cash Flow ’ 0 ($0.78 million) 1 + 5 million 2 (4.3 million) < = : pu (0T o321 - 78, %S"—L{.a D 2’7 MNO (438, LED blt = $ 7 YeT Which of the following statements is most CORRECT? ] o : a. The project should be accepted if the firm's-cost of ca;% is less than 11.696452 percent. [© ¥3¢ b. The project has two IRRs (2.337976 perceiit and 416.086524 percent) so the project should be accepted if the firm's cost of capital is between 2.337976 and 416.086524 percent. - F ¢. The project has two IRRs (2.337976 percent and 438.687666 percent) so the project should be accepred if the firm's cost of capital is less than or équal to 2.337976 percent or greater than or equal 1o 438.687666 percent. - d. _The project.should be accepted if the cost of capital is 2.20%. 1= L The project should be rejected if the cost of capital is between 0 and 2.337976 percent. T 5. 43.32 percent c. 26.88 percent : d. 34.06 percent mlm e. 39.24 percent : "2)20.42 percent - 7 17 zouz. =y 95

3 Schuette, Inc. wants to select the best group of independent pl‘OJEC'[S competing for the firm's fixed . capital budget of 600,000. (Assume any unised portion of this budget will earn a k return. Remembel o what I said about this in class.) Using the summary of ke) data about the proposed projects below, what(' is the maxnnum value that can be added to the firm with a capital budget of only 600,000? - (B1ze) P+ Ceed ) Py (- LP5>> , PV of Inflows - Pd(m L{«’s ) Project Initial Investment k=10%) NPV? A ($200,000) $240,000 ol B (140,000) 160.000 26K C (180.,000) 260,000 CBo K D (220,000) 270,600 ep¥ E (60,000) 90.000 2o K. $120,000 i $150,000 A Two groups tie at $170, 000. Two groups tie at $160,000. A \3}\ . none of the above %+?>o+ o + 2o fil?m{ + &+ 50 =TTop P ;& ,‘p A L{,D 4 50 4 2% ”#I%K ™ L &7 N b o B (s+$‘b+95’ifofi - Q\,@Q fiffi% 4 Grace Winter mvestéd in @ project that has the following quarterly cash flows over the next 1.5 years. If interest is compounded quarterly, vvhal is the efi’eclzve annual rale of return f01 this pr o_;ect" (Round to 6 decimal places throughout.) : 0 - 025 0.50 0.75 . 1 ' 1.25 1.50 - { | | | | | 1 (500) 80 \/100 110 180 230 10 T4 e ( §oo, 2?0 16, 11D, H{% 2/% m%) = /0, LOBT Z@.‘ 26.04 percent y}m %/{; 31.22 percent - g’ e (L DT 44.087. ( 10.61 percent /i\ . 49.68 percent’ r-wev'w 96

Use the following data to answer the next 4 questions: : : .Nathaniel Shiferaw of Shiferaw Company is evaluating two mutually exclusive projects.(expected cash flows hown below). The firm's cost of capital is 11 percent. 4z luo Year Project A . Project B .0 (600) — o (600) 3 1 200 =400 & 2 310 - 260 3 : 100 o oWl 4t “ [*] Ypso m(a,‘%—%o,m,'%&:}) ' 'IRR? _ o274 . - T 3661 5 Calculate the NPVs and IRRs Tor P10j and B. a. Project A's NPV is $124.26, and Project B's NPV is $89.52. - b. Project A's NPV is $116.04 percent, and Project B's NPV is $44.5013. c. Project A's IRR is 20.94 percent, and Project B's IRR is 21.70 percent. Project A's IRR is 21.27 percent, and Project B's IRR is 16.27 percent. e.- None of the above. v p Vv 6 Calculate the Discounted Payback Period for Projéct B. ((QQ@)! ('(9‘3 ® ) a. ~ 1.77 years Lf'fibfécii = Ao 3, b. 1.58 years ] - A ¢ 226years 2@0/3»‘-1 = Zil. 0T 2.39 years Z-é‘ boo - Beoab- e S0 = 7300 e. .54 years g - 1.1 = 2,39 \eg. 7 Draw the projects' NPV profiles in the space provided below. Which of the following statements is most FALSE? (Remember, these projects are mutually exclusive.) a. If the firm’s cost of capital is 17%, only Project A would be acceptable. .y * The profile for Project B crosses the vertical axis at $44.50. = . Atacost of capital of 35.61%, you would be indifferent between the projects, but neither project would have a positive NPV. -¢ R d. The profiles for projects A and B do not cross in the cost of capital’s relevant range. T e. Project A’s NPV profile crosses the horizontal axis at 21.27%. T

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8 a. Project A’s MIRR has to be between 11% and 21.27%. T 9 Tnp - K 10 . 4. For a normal'project, if the IRR is greater than k then the MIRR must be greater tlhan k. Which of the followmg conclusmns is most CORRECT concermng Pr OjeCtS A and B?-. (Choose the best-answer.) For the relevant range of k, Project B is the better prOJect = A . c. Project A should be chosen because its IRR is higher. [~ d. Project B’s MIRR has fo be between 16.29% and 21.27%. | e. The projects’ pr ofiles cross because of the dxffe;ellce in the projects’ sizes. F Which of the: followxng statements is most FALSE? = . . ‘ T b. If the MIRR equals the IRR of a project, then either the project is a breakeven project or the Yr oject: does not have any interim cash flows to reinvest. " c. Ifthe projects are of different size, the MIRR will not always choose the plOJeCl that adds the most value to the firm. 7}~ @ If a firm’s cost of capital i increases, the IRR of the project w1ll increase. F e. If a project has nonnormal cash flows, it may or- may not have multiple IRRs. 7§~ Jourdan Boudreaux is currently evaluating two mutually exclusive projects which have the following after-tax net cash flows: N@\f (;,b Ao ow %)700)'5@-%%?‘) 1757 3§ 0 1 2 o 24 ProjectS: | 407f. | | b iDT’b ] i (3000) 1700 2000 . 1 S S of S PV 14,24 HY. 24 0 2 304 S Project L: (A | : oo G s ] ' ©(3000) ¢ 1200 1300 800 700 400, ;@\) é@l-"goo ilm[%oc ?Dé ‘?DD é{/obg)“ tgzeg_z_' » 1ot : , , . g — Pt ¢ e | 320.00 Both projects have a cost of capital of l_g;/g Calculate the EAA (Equnvalent Annual Annuity) payments for Projects L and S, then make a decision as to which project should be chosen. e Choose Project L since its EAA payment is $15.71 greater than the EAA of Project S. Choose Project L since its EAA payment is $18.07 greater than the EAA of Project S. ¢c. Choose Project S since its EAA payment is $19.76 greater than the EAA of Project L. d. Choose Project S since its EAA payment is $8. 47 greater than the EAA of Project L. i} e... None of the above _ : ] ( 98

OR N ¥orace Harms & Company is anllyzing which of the following mutually exclusive projects it should “rdccept. Assume that the firm's costof capital is 12 percent and that both projects have normal cash flows. Which of the following statements is most FALSE? Project C Project D Cowv GRS IR B, % ser 4 £erp o ¢ AS b . ] ] D The NPV)érohles a may or may not cross in the positive qué’dram. T TS b. If the profiles do not cross in the positive quadrant, then the sum of Project C'scash flows is gréater than the.sum of Project D’s cash flows. T c. Ifthe profiles DO cross in the positive guadrant, then the crossover rate is less than the cost of capital. T~ " d. Regardless of whether the profiles cross or not, Project C should be chosen. T~ @ The sum of Project C’s cash flows is greater than the sum of Project D’s cash flows. F (> Which of the following statements is most FALSE? a. Accelerating depreciation expense in the earlier years of a project actually helps the NPV of the project because earlier cash flows of the project are increased. “{ b. Interest expense shouldbe subtracted from the operating income when deriving operating cash flows for a project. T~ c. When Apple invested in its music store, this boosted sales of its ipod. This is an example of a positive within-firm externality. [~ ﬂ When Home Depot spent $2 million investigating the feasibility of building a new store ina particular area, that cash flow should be part of the initial investment outlay of the time line looking at whether to go forward with building the new store. e. IBM fouled up when it reined in ifs PC division because it was afraid of cannibalizing sales from its mainframe division. T ‘ 99

Use the following information for the next 4 questions. : - As the capital budgetmg director of Colson Manufacturing, Craig is analyzmg the 1eplacement of an m]ectlon 2 Mg | molding machine. The old machine was purchased 2 years ago for $15.000; it falls into the MACRS 5—}’6317)% I 2 class; and it ha€ 2 years of remaining life ¥ith a $1,000 salvage Value 2 years from now. The current market ’ value of the machine 1s $4.000. ‘ ‘ \1 oo ' = Yoo The price of 2 machine is.currently $30,000, plus an additional $1500 f01 installation and $500 for . p shipping. The new machine falls into the MACRS 5-year class, has § 2-iear economic life, jnd a $20.000 ’D& EPRY salvage value. The new machine will 1equ1re a $3,000 increase in inventory, and accounts payable is expected Sz b to increase by $2,300. The new machine is expected o increase révenue by $6.000 per year and decrease costs > by $1.000 per vear. The firm has a 10 percent cost of capital and a marginal tax rate of 40 Qexcexul The MACRS §~year class uses the followmg percentages: 20%, 32%, 19%, 12%. 11%. 6% (in that order). (Round all CFs to nearest dollar =~k oLD: ;@ 322 D 141 1 la?/z 2 qu(j :Hj’?:'(.qw Na»: { . 2ell A 2. 1 téutz—;;w 7. oot ) o, tn g %:W> e, ek 280 _ (1,85 () Tay Ggeet 4){% ol (1oso) W\LSM%«/ ANRE (700) Npy. L — (815,09 (Lzo) M T € FEe f_’:@ © 4 OMME TM% E/ooo - (.47 )LY%D\] ¢ <1280 ay saved 4/' ,,‘ Ez,oooc—- (qf)LSLbDD>34 /fS‘p ‘]"A),Lm@/\\, - ; Tax %7, s e beea [looo - (. 1‘7)( I b()b)} Y .,—»(02/5 m%? . #A/WM@O ( NPV (\0 -21H403, % 5020, M%’Obi) =185 J—— 100, .-

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13 14 15 16 . ‘What is the net cash investment at t = 07 a. outflow of $26,720 ’ @ outflow of $27,420 . c. .outflow of $27,880 d. outflow of $28,090 ‘e. “outflow of $29,980 What is the operating cash flow (OCF) for Year 2 (at t =2)? \_ $7,576 b. $6,040 $8,296 $5.,460 , None of the above. ) What is the missed tax effect from selling the old machine today rather than in two years? a. cash outflow of $400 b. - cash inflow of $400 cash.cutflow of $620 d. cash inflow of $620 e. None of the above. Should the firm replace its older machine with the new machine? a. No, the incremental cash flow from the new machine is insufficient to justify investing in the new machine. Buying the new machine would decrease the value of the firm by $4,375. b. No, the incremental cash flow from the new machine is insufficient 10 j ustify investing in the new machine. Buying the new machihe would decrease the value of the firm by $5,706. @ No, the incremental cash flow from the new machine is insufficient to justify investing in the new machine.- Buying the new machine would decrease the'value of the firm by $1.815. d. No, the incremental cash flow from the new machine is insufficient to justify investing in the new machine. Biiying the new machine would decrease thevalue of the firm by $790. e. None of the above. 101

17 Liz Roberts of Roberts Hotels traveled to Venice this past May and is interested in building a new hotel - just outside the town. The company estimates that the botel would require an initial investment of $11 million. Liz expects that the hotel will produce positive cash flows of $3.8 miillion a year at the endof { each of the next 20 years and can be salvaged (after-tax) for $24 million at =20, Liz recoghizes that the cash flows could, in fact, be much higher or lower, depending on whether that area becomes a popular tourist area. Tt is believed that at the end of two years, a 30 percent chance exists that tourism will NOT be spreading in that direction and yearly cash flows will be only $1.6 million for 20 years with an after- tax salvage value of $8 million, and a 70 percent chance exists that tourism WILL be heading that way and the yearly cash flows will be $5 million for 20 years with an after-tax salvage value of $31 million. If the firm waits two years, the initial investment will be $12 million. The project’s cost of capital is 12 percent. Should the firm proceed with the project today or should it wait two years before deciding? (Round to the nearest dollar.) A - 14 71 g? Eacl — b F LU o f = 5',7!{7 9 Build now; the NPV of building today is $3,747,243 more than the NPV for waiting two years. i p 5. Build now; the NPV of building today is 3;412,809 more than the NPV for waiting two years. ¢. Build now; the NPV.of building today is $3,933.893 more than the NPV for. waiting two years. d. Build now: the NPV of building today is $3,146,667 more than the NPV for waiting two years. e. None of the above is within $100 of the answer. 19 (2% L \ Lzl , ) 4 ) ’J’%Miw —n 2.0 2.9 3¢ NPy eru) %3.?)1’2}7%)& \4) u,%) 2y c = [4,87158¢ nik. E \ ) AN N Al | il Npg ([’L.’ 0)[@__(_31;[& . x.lp)@.(;%fi N )lfi)' | {) . '%_/: BT A S {jgguusyififpx,gfi-4@b944§f“ 2 eHs ‘w , - o NNz e ¢ 43714455

Use the ﬂ'olllownng jiiformation for the next 3 questions. Jermi, the CFO of Harding Technology Incorporated is.planning next year's capxtal budget It is at its optimal apital structure, which is 22 percent debtand 78-percent common-equity, and the company's earnings and dividends are growing at a constant rate %f 14 percent... The last dividend, Do, was $1.00, and the company’s stock currently sells at a price of $32 per share: The firm can raise debt at a 9 percent before-tax.cost, and is projecting net income to be $2,000,000 with a dividend payout ratio of 15 percent. f the firm issues new common stock, a 6 percent flotation cost will be incurred. -~ The firm's marginal tax rate is 40 percent. 18 What is the cost of retained earnings? D é‘) b= \ 80 o 17.56 percent - -~ { E "~ 7b. 16.46 percent iis = ? ) + &:\j b = 00 ( %\) c. 18.82 percent e - 2.0 d. 17.79 percent : ‘ i DT fi 2 [’ 4> e. 19.76 percent - —_‘l-/\ﬂ__ ’%‘al% JD( 14 32 R 19 If the company ends up spending $2.4 million of new capital. how much new common stock must be sold? a. $1,872,000 o ‘ 3 O N { fi 000,000 b. $0, the firm still has $128,000 of retained eamings to use §§ $528,000 ¢ : . €d.; $172,000 ™ T - - % None of the above c : : : UW’ _ %g ,7()0! GOO Dfind Brealepoint o (@ 2,400,000 e LT700000 0 (217948718 ot Amaeryg TS 26512 82 X8 20- Calculate WACC? in the MCC schedule. a. 17.43 percent ™ b, 14.23 percent . k@ ?? P%’fi = I IL{ + ELg L ' 15.06 percent i i‘”/ i LR S & d. 15.47 percent 1 39‘(. b{g) o i 72 .e. 16.64 percent V\{ FXCC;L = el (1T + wys Kps + W@g@@ ‘ ;L;L(@‘)( q‘) O+ 18 (11.19) 1188 + :?).%fvlg_g.m- - 103

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21 Lundquist Incorporated estimates that its retained earnings break point (BPRE) is $21 inillion and ifs . ¢ C - WACC is 13.40 percent if cominon equxty comes from tetained earmings. However, if the company ! issues new stock t0'raise new commbn equity; it estinates that its WACC will rise to 13.88 percent. TI]( company is considering the following investment projects: ST TWACC Project - Size s JRR / e $4million (%) 14.00% (62 ‘/ . lem\k‘?%l\#bmllvwlmt{ B Smillion - €D15.10 ' 17 c 4 million D1620 10 "D 6 million 14.20 - 4.2 : - E 1 million 13.42 " Rk 12.58 CF 3 million 13.65 . ju}.0 ¢ SO = 1345 What is the filTll s oplzmal capital budget? a. $23 million $22 million ~ @ M(l /Lﬂ' lN\\\ [_\3 0@) i § o ¢ g $21 million Jorid , . 4. $19 million CEgA%EE Y ﬂ;,uéllﬂ { e. None of the above - i = |59 . ‘ . ) i R ASLE ”f‘gl"? fmillion 22 In the prévious p10b16111 was it applopnate to use IRR in deciding which projects would add value to the firm?: ) a. Not really since IRR does not always choose the project that adds the most value to the firm. b. Not really since IRR assumes that interim cash flows are reinvested at the IRR rate. ( c. Notreally. MIRR would have been a better method to use wheri choosmo pr OJSC'ES would add value™... sz 1O the firm. ) Yes. IRR will choose the exact same group of pro;ects as being profitable that NPV or MIRR 2" would. e. Yes. IRRhasa bettel' reinvestment rate assumption than NPV does 23 “The following tabulation gives earnings per share figures for the Tucker Spax ks Company during the preceding six years. The firm’s common stock. 10 niillion shares outstanding, is riow (1/1/10) selling for’ 05 $15.20 per share, and the expected dividend at the end of the current year (2010) is 25 percent of the 2009 EPS.: Betduse investors expect past trends to continue, g may be based on the earnings growth rate. (Note that 5 years of compounded growth are reflected in the data.) fird éf’&owfih “TYEAR YEAR EPS 5 i 15004 1643 PN 2007 2.04 ¢ 2005 182 2008 - 24 1?7 ;,f 11051 ‘il : 2006 191 - 2000 ~(2ID 6V . . Pv=1.bd M= § The current interest rate on new debt is 7 per cent. . The firm’s margmal tax rate IS 40 pexcent The firm’s Al capital stricture; considered to be optimal, is 30 percent debt and 70 percent common equity. Calculate the weighted average cost of Capital (assume that no new comion stock has to be sold) a. 10.02 percen percent s .,,‘\1957 Di= 25 (% an b. 10.43 percent c. 10.86 percent " = .15 11.25 percent ’ig .' 11 78 percent : 0\609 ¢ ) ( WA ’Wdl@% (-1 wee (ks = %(ﬂ( D+ .15 oa) L0521 11187, | 104

24 Russell Stockman, CFO for Stockman, Inc., recently purchased a new delivery truck. The new truck " costs $62,000, and is expected 1o generate net after-tax operating cash flows, including depreciation, of $30,000 per y per year for the 4 years that the firm is thinking about keepmg it. The expected year-end ) abandonment values for the truck are given below. The compaxxy s cost of capltal is 9 percent. What is - the optimal economic life? YEAR CASH FLOW ABANDONMENT:VALUE 0 (62,000) 1 30,000 51,000 2 30,000 . 44,000, '3 30,000 . 14,000 4 30,000 10,000 a. The EAA method confirms that the economic life is 1 year. Y The EAA méthod confirms that the economic life is 2 years. The EAA method confirms that the economic life is 3 years. d. The EAA method confifms that the economic life is 4 years. e. Ifthe abandonment value for owning the truck only 1 year could be increased from $51,000 to $52,000, the 1-year option would need to be considered more seriously. 2 Nes Yyes . y ° 3 (t .(. t !'6“‘ (‘ 'l X )1‘ o ?«; -br 3o 30 30 | Kz ‘e upy = 277,807 Nev=d2 27k [ O gk O gk \fil. EROR — 2gn P —42@e A g 675, gor] 25 Thuy Nguyell is 1’}!1 romising new employee who has beel) given the following project to analyze The company’s cost of capital is 10%. Time Cash Flow 0 (500) 1 (200) 2 (300) 3 (200) 4 (300} Which of the following statements is most CORRECT‘7 a. No NPV exists for this project. No IRR exists for this project. c The IRR is equal to zero. d. Multiple IRRs exist. e. None of the above. 105

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1 calculate the net present in A4 of the following cash flow stream shown in AS through LogGbeint the required rate is 12% Mary Slap yearry On 12304 5. Cash Flow (230,000) 60,000 60,000 60.000 60.000 60.000 NPV calculation: 2014 Yorker 20111 on ELL PA 1912 H H 2010005 $1914:00p Is this a good project for the business to accept? OG SOLCE

Consider the following cash flows: C₁ Co -$45 +$41 +$41 +$41 a. Which two of the following rates are the IRRS of this project Note: You may select more than one answer. Single click th for a correct answers and double click the box with the que boxes left with a question mark will be automatically grade 2.5% 34.2% 14.3% 34.2% CA -$82 40.0%

Consider the following cash flows: Co -$29 C₁ +$ 25 C₂ +$ 25 C3 +$ 25 C4 -$48 a. Which two of the following rates are the IRRs of this project? Note: You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answers and double click the box with the question mark to empty the box for a wrong answers. Any boxes left with a question mark will be automatically graded as incorrect. 2.5% 7.1% 14.3% 26.4% 40.0% b., c., and d. What is project NPV if the discount rates are 5%, 17%, and 34%? Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 3 decimal places. b. Discount Rate NPV 5%

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15. Suzanne's Cleaners is considering a project that has the following cash flow data. What is the project's payback? Year 1 2 3 Cash Flows 1100 300 310 320 4 330 340 А. 2.56 уrs. В. 2.85 уrs. С. 3.16 уrs. D. 3.52 yrs.

Compute the IRR static for Project E. The appropriate cost of capital is 7 percent. (Do not round Intermedlate calculatilons and round your final answer to 2 declmal places.) 5. $180 1. 2. Cash flow -%241,400 009$ IRR % Should the project be accepted or rejected? O accepted O rejected Mc < Prev Type here to search |五 0 DELL F2 F4 F5 F7 9- F10 F12 PrtSc # & 2 24 ) 3. 4. L. 8.

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The NPV of the project is: - Rs. 3.15 million - Rs. 8.05 million - Rs. 10.75 million - Rs. 22.19 million

Consider a project with the following cash flows: Time 0 1 2 3 4 5 CF -$5,000 $5,000 $4,000 $2,000 $1,000 -$6,000 Please round your answer to two decimal places. (e.g. 12345.67 for $12,345.67; 12.34 for 12.34%) a) What does excel (or your calculator) say the IRR is?

A firm calculates for a new project the following cash flows to shareholders over the years 0 to 2, $-1,604,$1,262, $1,502 and to other stakeholders $-147, $-220, $-189. The discount rate is 6.5% and the social distance is 27%. What is the SNPV for the project? (Answer in $ with no decimal places, so 150123 for $150,123). 496 margin of error +/- 2%

ducation.com/ext/map/index.html?_con=con&external_browser=0&launchUrl=https%253A%252F%252Flms.mheducation.com%252 Saved Labeau Products, Ltd., of Perth, Australia, has $35,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: Invest Invest in in Project Project Y Investment required Annual cash inflows $ 35,000 $ 35,000 $ 12,000 Single cash inflow at the end of 6 years Life of the project $ 90,000 6 years 6 years The company's discount rate is 18%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. ences Required: 1. Compute the net present value of Project X. 2. Compute the net present value of Project Y. 3. Which project would you recommend the company accept? Complete this question by entering your answers in the tabs below. Required Required 3 Required 2 Required 1 Compute the net present value of Project X. (Round your final answer to the nearest whole dollar amount.) Net…

Only use Excel please and take a screenshot

I have included the link to the cash flow table: https://docs.google.com/spreadsheets/d/1nT89Bz8jolwnBRNPgAmJyHjvWSOffnkcVu0XoCbjRuo/edit?gid=0#gid=0 Suppose that your client, a real estate investor, has asked you to evaluate an anchored retail shopping center that is for sale for $3,595,000 in Clearwater, Florida. You have been asked to perform an analysis of the property, including an estimate of cash flows and IRR, and to make a recommendation on whether or not your client should purchase the property. For this analysis, assume a five-year holding period. The shopping center has 33,250 square feet of rentable space. Since detailed information is not available on existing leases, assume that the property will lease at the average rent for the Tampa / St. Petersburg market. The average asking rent for Tampa is $12.90 and the average vacancy rate is 6.5%. Assume that rents will increase by 5% per year. Annual expenses are as follows: Insurance: $12,312 Utilities: $14,500 RE Taxes:…

2. What are the free cash flows that are relevant to analyzing the two projects? Compute the NPVs of the two projects. Which project creates more value?

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