You are a senior manager at Poeing Aircrafts and have been authorized to spend up to $200 million for projects. The three projects that you are considering have the following characteristics:
Project A: Initial Investment of $150 m. Cash flow of $50 m. at year 1 and $100 m. at year 2. This is plant expansion project, where the required rate of return is 10%.
Project B: Initial Investment of $200 m. Cash flow of $200 m. at year 1 and $100 m. at year 2. This is new product development project, where the required rate of return is 20%.
Project C: Initial Investment of $100 m. Cash Flow of $100 m. at year 1 and $100 m. at year 2. This is a market expansion project and the required rate of return is 20%. Assume that corporate discount rate is 10%.
Please offer your recommendations for the projects choice backed up by your analysis. Specically, for each project, find its NPV, PI, Payback, and IRR. When computing IRR, please also do the IRR on incremental cash flows (if it is needed in your opinion). Say which project(s) each rule suggests to choose and whether you should trust the rule in this particular case. A B C Implications NPV IRR Incremental IRR PI Payback (Note: The solutions to quadratic equation of form ax2 + bx + c = 0 are x1 = b+ p b 24ac 2a and x2 = b p b 24ac 2a ). To find the IRR you can use your calculator, Excel, or the formula for solutions to quadratic equation.