Congratulations! You have moved up to the XYZ Corps Financial Team. For your first assignment as part of team you are asked to compare 3 potential capital investments. Instructions: Each project has a 10-year life span with no residual value. The initial investment on each is $15,000. The Weighted Average Cost of Capital (WACC) is 5% for each project as well. The difference between the projects is cash flows. • Project 1 has a steady stream of cash flows, $2,000 annually throughout its life. • Project 2’s cash flows start with $2,450 per year but decrease by $100 per year throughout its life. • Project 3 starts with $1,550 in year one but increases by $100 per year throughout its life. Using the NPV method, determine which investment is the better capital investment and please explain why.
