All answers need to be calculated in Excel. Show all work please.
A company is considering three capital budgeting projects. Each project requires an initial outlay of $4,000,000. Cash inflows for each project are given in the table below. Each project has a life of 3 years. The company uses the NPV method to evaluate capital budgeting projects and its required rate of return is 9%. Here are the cash inflows from the projects. Project A Project B Project C Year 1 $1,900,000 0 $1,000,000 Year 2 $1,900,000 0 $2,000,000 Year 3 $1,900,000 $6,000,000 $2,000,000
1. Perform all relevant calculations to determine NPV for each project. Show all work and perform all time value computations using the time value functions in Excel.
2. If the projects are independent, which, if any, should the company accept? Why?
3. If the projects are mutually exclusive, which, if any, should the company accept? Why?
4. One of the company’s managers states “To me, no matter what else we do, Project B needs to be our first choice because it has the largest cash inflows of $6,000,000”. Comment on this manager’s proposal, considering the tenets of NPV and based on your computations.
5. This one has nothing to do with the foregoing data. Give an example of a capital budgeting project that would be considered “independent”. Give an example of a capital budgeting project that would be considered “mutually exclusive”. No explanation is needed, but be sure your descriptions of the projects you have identified is clear so that I can see why one is independent and one is mutually exclusive.