You have to choose between two projects. Jedi investment requires 45 million creds of seed capital, and it generates 20 million creds, 17 million creds, and 15 million creds free cash-flow for the next 3 consecutive years. Darth Vader investment requires 13 million creds seed capital and it will generate a one-time 15 million creds free cash-flow after two years. There are three other similar investment possibilities on the market: a) 1-year investment, with a required rate of return of 2%; b) 2-year investment, with a required rate of return of 4%; c) 3-year investment, with a required rate of return of 6%.
Calculate the NPV for Jedi investment project! Which discount rate did you use and why?
Which of the projects would you choose based on its PI?
Calculate the IRR for Darth Vader investment project.
Explain why the sequence of certain indices may be different!