You are the head of the project selection team at SIMSOX. Your team is considering three different projects. Based on past history, SIMSOX expects at least a rate of return of 20%. Your financial advisors predict inflation to remain at 3% into the foreseeable future. The information about three projects is given below: Project: Dust Devils Year Investment Revenue Stream 500,000 50,000 250,000 350,000 Project: Ospry Year Investment Revenue Stream 250,000 75,000 75,000 75,000 50,000 Project: Voyagers Year Investment Revenue Stream 75,000 15,000 25,000 50,000 50,000 150,000 Use Excel to apply the Payback Period, Net Present Value and Internal Rate of Return Analysis to the three projects. Copy and paste your Excel spreadsheet below. Project: Dust Devils Discount rate (Rate of return = 20% + inflation rate = 3%) 23% Year Inflow Outflow Net flow Cumulative Netflow Discounted Netflow 500,000.00 -500,000.00 – 500,000.00 – 500,000.00 50,000.00 50,000.00 – 450,000.00 40,650.41 250,000.00 250,000.00 – 200,000.00 165,245.55 350,000.00 350,000.00 150,000.00 188,084.37 – 106,019.67 NPV -106,019.67 IRR 11% PP 2.57 Years Project: Ospry Discount rate (Rate of return = 20% + inflation rate = 3%) 23% Year Inflow Outflow Net flow Cumulative Netflow Discounted Netflow 250,000.00 -250,000.00 – 250,000.00 – 250,000.00 75,000.00 75,000.00 – 175,000.00 60,975.61 75,000.00 75,000.00 – 100,000.00 49,573.67 75,000.00 75,000.00 – 25,000.00 40,303.79 50,000.00 50,000.00 25,000.00 21,844.87 – 77,302.06 NPV – 77,302.06 IRR 4% PP 3.50 Years Project: Voyagers Discount rate (Rate of return = 20% + inflation rate = 3%) 23% Year Inflow Outflow Net flow Cumulative Netflow Discounted Netflow 75,000.00 – 75,000.00 – 75,000.00 – 75,000.00 15,000.00 15,000.00 – 60,000.00 12,195.12 25,000.00 25,000.00 – 35,000.00 16,524.56 50,000.00 50,000.00 15,000.00 26,869.20 50,000.00 50,000.00 65,000.00 21,844.87 150,000.00 150,000.00 215,000.00 53,280.18 55,713.93 NPV 55,713.93 IRR 44% PP 2.70 Years Summarize the results for the three projects in the following table: Dust Devils Ospry Voyagers Payback Period 2.57 3.5 2.7 Net Present Values -106,019.67 – 77,302.06 55,713.93 Internal Rate of Return 11% 4% 44% Which project should be SIMSOX first priority? Give reason for your answer. The first priority project is Voyagers Project because it has the highest internal rate of return (44%) which cover the lowest expected rate plus inflation rate (23%). It also does not get minus value on NPV compare with two others. Should SIMSOX fund any of the other projects? Give reason for your answer. SIMSOX should not invest in others projects because the rest projects do not reach the lowest expected rate of return and get minus value on NPV.
