Daymore plc is currently considering three investment opportunities. The following is the details of the investments:- Project A:- 1. initial outlay $80m 2. Future net inflows Year 1: $190m Year 2: $10m Project B:- 1. initial outlay $140m 2. Future net inflows Year 1: $180m Year 2: $120m Project C:- 1. initial outlay $90m 2. Future net inflows Year 1: $10m Year 2: $220m The company has a capital budget that is restricted in the year of the investment and it will not be possible to undertake all three projects in full. The investment opportunities are independent of one another and each project is divisible (that is, it is possible to undertake part of an investment and to receive a pro-rata return). The cost of capital of the company is 12% and the company uses the net present value method of investment appraisal. Required: Calculate and determine the ranking of the three investment opportunities? (The ranking for the first choice, second choice, and third choice is 1, 2, and 3 respectively). Show your calculations.
Daymore plc is currently considering three investment opportunities. The following is the
details of the investments:-
Project A:-
1. initial outlay $80m
2. Future net inflows
Year 1: $190m
Year 2: $10m
Project B:-
1. initial outlay $140m
2. Future net inflows
Year 1: $180m
Year 2: $120m
Project C:-
1. initial outlay $90m
2. Future net inflows
Year 1: $10m
Year 2: $220m
The company has a capital budget that is restricted in the year of the investment and it will
not be possible to undertake all three projects in full. The investment opportunities are
independent of one another and each project is divisible (that is, it is possible to undertake
part of an investment and to receive a pro-rata return). The cost of capital of the company is
12% and the company uses the
Required:
Calculate and determine the ranking of the three investment opportunities? (The ranking for
the first choice, second choice, and third choice is 1, 2, and 3 respectively). Show your
calculations.
Step by step
Solved in 4 steps
