Botany Bay, Inc,, a maker of casual clothing is considering four projects shown in the following table, Because of ast financial difficulties, the company has a high cost of capital at 14.2%. Which of these projects would be acceptable under those cost circumstances?
Table:
Initial investment - Project A - $49,200
Year 1 - Cash inflows - $20,300
Year 2 - Cash inflows - $20,300
Year 3 - Cash inflows - $20,300
Initial investment - Project B - $99,600
Year 1 - Cash inflows - $36,300
Year 2 - Cash inflows - $50,200
Year 3 - Cash inflows - $51,700
Initial investment - Project C - $80,400
Year 1 - Cash inflows - $20,500
Year 2 - Cash inflows - $41,000
Year 3 - Cash inflows - $59,300
Initial investment - Project D - $180,300
Year 1 - Cash inflows - $99,400
Year 2 - Cash inflows - $80,000
Year 3 - Cash inflows - $60,200
a. Calculate the NPV of each project, using a cost of capital of 14.2%. What is the NPV of project A.
b. Rank the acceptable projects by NPV.
c. Calculate the IRR of each project and use it to determine the highest cost of capital at which all of the projects would be acceptable.