AGEC 480 Homework #2, writing help

AGEC 480
Homework #2
You will enter your answers via a quiz format

1. Consider the following information in choosing among the four project alternatives below (labeled A, B, C, and D). Each has been assessed according to four criteria:

• Payoff potential
• Lack of risk
• Safety
• Competitive advantage

Project A is rated:

Payoff potential high
Lack of risk low

Safety high
Competitive advantage medium

Project B is rated:

Payoff potential low
Lack of risk medium
Safety medium
Competitive advantage medium

Project C is rated:
Payoff potential medium
Lack of risk medium

Safety low
Competitive advantage low

Project D is rated:
Payoff potential high
Lack of risk high

Safety medium
Competitive advantage medium

3. Assume that your firm wants to choose between two project options:
• Project A offers the following opportunity: $500,000 invested today will yield an expected income stream of $150,000 per year for 5 years.
• Project B requires an initial investment of $400,000, but its expected revenue stream is: Year 1 = 0, Year 2 = $50,000, Year 3 = $200,000, Year 4 = $300,000, and Year 5 = $200,000.
Assume that a required rate of return for your company is 10% and that inflation is currently expected to remain steady at 3% for the life of the project. Which is the better investment? Why?

4. Your Vice President for MIS informs you that she has researched the possibility of automating your organization’s order-entry system. She has projected that the new system will reduce labor costs by $30,000 each year over the next five years. The purchase price (including installation and testing) of the new system is $110,000.
What is the Net Present Value of this investment if the discount rate is 10% per year?