I’d love some help with a scenario involving a sustainable energy company that’s into renewable tech like solar panels and wind turbines. Their CEO recently hired a consultant for a four-year project review, which cost $1,000. The project is projected to bring in annual cash inflows of $1,650 for those four years but requires an upfront $3,000 investment, and it also has a $2,000 closing cost in the last year. So, with a required return rate of 10%, how would we go about calculating the project’s NPV, and is this project something worth considering? Also, in this context, does it make sense to look at IRR for evaluating this project, even without going through the full calculations? Lastly, since the CEO has limited capital and is looking at several projects, they’re planning to go with the combination that maximizes NPV. What do you think about this strategy for picking and deciding on projects?

Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled in order to complete this recommendation: According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firms tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board, Write a memo to the Board of Directors objectively weighing out the pros and cons of this project and make your recommendation(s).

Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?

You are getting ready to start a new project that will incur some cleanup and shutdown costs when it is completed. The project costs $5.35 million up front and is expected to generate $1.15 million per year for 10 years and then have some shutdown costs at the end of year 11. Use the MIRR approach to find the maximum shutdown costs you could incur and still meet your cost of capital of 15.3% on this project. The maximum shutdown costs allowable to still have a positive NPV is $. (Round to the nearest dollar.)