Self-Study Questions
Questions 1 through 4 relate to the following pair of proposed projects at Mega Industries.
| End of Year | Project P1 | Project P2 |
|---|---|---|
| 0 | –$100,000 | –$100,000 |
| 1 | $11,000 | $72,000 |
| 2 | $19,000 | $42,000 |
| 3 | $31,000 | $6000 |
| 4 | $42,000 | $6000 |
| 5 | $48,500 | $4500 |
| 1. | Evaluate the PW(i) of both projects using Mega Industries' risk-free MARR of 8%. Does one of the projects appear significantly better than the other? |
| 2. | Suppose that Mega Industries knows that Project P1 is somewhat riskier than normal and they also know that Project P2 is significantly riskier than Project P1. In light of their evaluations at the risk-free MARR, does one of the projects seem preferable to the other? |
| 3. | Suppose that Mega Industries decides to use a risk-adjusted MARR of 12% for Project P1 and a risk-adjusted ... |
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