PROJECT SELECTION CRITERIA

Question 1
The Walters Company is considering two investment proposals for the next four years.
The projected cash flow of the two projects are summarized in the table below (figures
are in million baht, with cash outflow in parentheses).

Year
Projects
0 1 2 3 4
A (10) (4) (2) (1) (1)
10 7 4 2
B (5) (5) (4) (2) (1)
3 8 7 4

The Company management estimates that the required rate of return should be 20%.
Compare the profitability of the projects using the Net Present Value method. Which
project will be selected to invest? Give a brief reason for selection.

Question 2
An investor is considering 2 projects A and B which have cash flows as follows:

End of the year 2007 2008 2009 2010 2011

Project A (1.000$) -150 60 50 70 50
Project B (1.000$) -80 30 20 60 40

The discount rate r = 10% /year

1. Calculate the equivalent value of the cash flow of project A at the end of 2010.
2. Calculate the net present value (NPV) of projects A and B. Which project should
the company select?

Question 3
1. The cash flow of a project is given below:
End of year 2000 2001 2002 2003 2004
CF -1,500 1,000 1,500 0 2,000
(Unit: in millions dong)

The annual interest rate is 10%

a. Determine the NPV of the project.
b. Calculate the present value of the project at the end of 2003.

Project Management 1 Dr. Cao Hao Thi

2. The cash flows of project A and B are as follows:
End of year 0 1 2 3 4 5
Project A -300,000 100,000 80,000 60,000 50,000 50,000
Project B -250,000 30,000 50,000 50,000 60,000 80,000
(Unit: in millions dong)

Which project will be selected to invest if the annual rate is 8%? Give a brief reason for
selection.

3. The cash flow of project A is given below:

End of year 0 1 2 3 4
CF -100,000 40,000 30,000 30,000 35,000
(Unit: in millions dong)

a. Calculate NPV of the project at the annual discount rate of 8%.

b. Calculate NPV of the project at the annual discount rate of 16%
c. Calculate IRR of the project.

Note: Use NPV and IRR function in Excel to check the results.

Question 4
A project cash flow is as follows::

Ending year 2003 2004 2005 2006 2007 2008 2009

Net Cash Flow - 100 -50 50 100 120 150 50
(Unit: in millions dong)

1. Find the NPV of the project; discounted rate is 6 % year.

2. Find the NPV of the project; discounted rate is 12 % year.
3. Use the above results to find IRR of the project.

Notes: Use NPV and IRR functions in Excel to check.

Project Management 2 Dr. Cao Hao Thi