2. PV, NPV, IRR, Payback period, and Benefit Cost Ratio. (Hint: Please look at the
formulas and do some calculations using them. These are simple comcepts but
sometimes one can get confused)
a) What is the present value (PV) of $300,000 received three years from now if
we expect the interest rate to be 10 percent?
b) You have two projects to choose from. Project A will take 3 years to complete
and has a Net Present value (NPV) of $45,000. Project B will take six years to
complete and has a NPV of $85,000. Which one would you prefer?
c) You have two projects to choose from; project A with an Internal Rate of
Return (IRR) of 21 percent or Project B with an IRR of 15 percent. Which one
would you prefer?
d) You have two projects to choose from: project a has a payback period of six
months or project b with a payback period of 18 months? Which one would you
prefer?
e) If the benefit cost ratio of project A is 2.3 and benefit cost ratio of project B is
1.7, which project would you select?
f) You have two projects to choose from: Project A with a NPV of $45,000 or
project B with an NPV of $85,000. What is the opportunity cost of selecting
project B?