capital investments calculate the npv irr and pi in excel


Here are the instructions for this discussion to be submitted in Excel:

Sky Fly, Inc is a fast growing drone manufacturer. The annual rate of

return of Sky Fly’s stock has been 20% over the past few years. Company

managers believe 20% is a good estimate for the firms’ cost of capital.

Sky Fly’s CEO, Dane Cooper, believes the company needs to continue to

invest in projects that offer the highest possible returns. Currently,

the company is reviewing two separate projects. Project E involves

expanding production capacity. Project I involves introducing one of the

firms’ drones into a new market. The following table shows the

projected cash flows for each project.

Year E I
0 -3,500,000 -500,000
1 1,500,000 250,000
2 2,000,000 350,000
3 2,500,000 375,000
4 2,750,000 425,000


  • Calculate the NPV, IRR, and PI for both projects.
  • Rank the projects based on their NPV, IRR, and PI.
  • The firm can only afford to take on one investment.
    • Which project will the CEO likely favor?
    • What do you think the company should do?

Explain your answers.

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