Aquanaut Industries has $100,000 available to invest in new equipment. Management is considering three different equipment investments, each of which requires $100,000. The expected after-tax cash flows for each project are as follows:
Year
1 2 3 4 5 6
Project 1 $20,000 $24,000 $28,000 $32,000 $32,000 $32,000
Project 2 36,000 (32,000)100,000 100,000 6,000 6,000
Project 3 60,000 0 0 0 60,000 125,000
a)Rank-order the project in terms of desirability using NPV as the criterion, with a discount rate of 15%.
b)Rank-order the projects in terms of desirability using the internal rate of return for each project as the criterion.
c)Given the quantitative results in parts (a)and (b), which project should the company choose? Explain.
d)List one qualitative factor that should be considered in making this investment decision.

Question

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The Answer of Aquanaut Industries has $100,000 available to invest in new equipment. Management is considering three different equipment investments, each of which requires $100,000. The expected after-tax cash flows for each project are as follows:
Year
1 2 3 4 5 6
Project 1 $20,000 $24,000 $28,000 $32,000 $32,000 $32,000
Project 2 36,000 (32,000)100,000 100,000 6,000 6,000
Project 3 60,000 0 0 0 60,000 125,000
a)Rank-order the project in terms of desirability using NPV as the criterion, with a discount rate of 15%.
b)Rank-order the projects in terms of desirability using the internal rate of return for each project as the criterion.
c)Given the quantitative results in parts (a)and (b), which project should the company choose? Explain.
d)List one qualitative factor that should be considered in making this investment decision.

Aquanaut Industries Has $100,000 Available to Invest in New Equipment