capital investments calculate the npv irr and pi in excel
Hello,
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 |
Discuss
- 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.
