Answer to Question #218205 in Financial Math for hululu

Question

The Keraniganj Investments Ltd. is considering investing in of the three mutually exclusive projects. It

seeks your suggestion as to which of the three projects should be chosen. The company expects to earn a

10% rate of return on all of its investments. The initial outlay and subsequent inflows associated with the

projects are as follows:

Year Project A Project B Project C

0 (1,000,000) (1,000,000) (1,000,000)

1 300,000 100,000 500,000

2 300,000 200,000 400,000

3 300,000 300,000 300,000

4 300,000 400,000 200,000

5 300,000 500,000 100,000

Required:

Suggest the company as to which of the three projects should be chosen, based on the following methods:

1. Payback period

2. Discounted payback period

3. Net present value

4. Profitability index

5. Internal rate of return

6. Modified internal rate of return