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Topic: You are the new financial assistant to the mayor of the City of Los Angeles, and need to advise the Mayor on some proposed capital investment projects. The three current projects under consideration are:
Project A: Build Toll Road
Initial Investment: $50 million
CF1 = $150 million
CF2 = $25 million
Note: CF = “Cash Flow”, so, for example, “CF1” means cash flow occurring at the end of Year 1.
Project B: Build Baseball Stadium
Initial Investment: $25 million
CF1 = $35 million
CF2 = $100 million
Project C: Build Airport
Initial Investment: $20 million
CF1 = $25 million
CF2 = $35 million
Assignment: Based on NPV, profitability index, and payback analysis, which project or projects do you approve? Unfortunately, however, due to a slow economy, you are limited to spending no more than $50 million. Additionally, the city uses a 10% discount rate when evaluating capital projects.
Please show your quantitative calculations via an Excel spreadsheet or other spreadsheet method in an easy-to-read data table like this:
NPV ProfIndex Payback Accept/Reject? Reason?
Project A
Project B
Project C
Then, below the data table, please write a brief (100-200 word) memo to the mayor summarizing your findings and making a recommendation regarding which projects to accept or reject
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