Problem
Wellwood Construction Ltd. is one of the largest infill companies in Alberta. Due to the recent economic turndown caused during the pandemic, they are planning on shutting down a few projects. Details of the three main projects are described below:
Project 1- initial investment: 500k, 2 year period, which produces 800 k in the first year, and 400 K in the second year, and a target rate of return of 5%
Project 2- initial investment: 500k, 2 year period, which produces 400 k in the first year, and 800 K in the second year, and a target rate of return of 5%
Project 3- initial investment: 500k, 2 year period, which produces 400 k in the first year, and 800 K in the second year, and a target rate of return of 3%
Which project do you think the company needs to shut down?