Question 1

Option A
0 1 2 3 4 5 6
-200,000 90,000 90,000 90,000 90,000 90,000 90,000

NPV 99296
IRR 39%

Option B
0 1 2 3
-500,000 300,000 300,000 300,000

NPV 131944
IRR 36%

Option C
0 1 2 3 4 5
-300,000 120,000 120,000 120,000 120,000 120,000

NPV 58873
IRR 29%

Therefore, the firm should invest 200,000 in option A and the rest 300,000 in option C to generate
maximum return.
Question 2

Minimum Rate of Return = 15%

Year -2 -1 0 1 2 3 4 5 6 7 8 9 10
- - -
25 20 35 10 10 15 15 15 15 15 15 15
A. Develop -100 0 0 0 0 0 0 0 0 0 0 0 0
- - -
25 30 40 20 20 20 20 20 20 20 20 20
B. Develop -100 0 0 0 0 0 0 0 0 0 0 0 0
-
25 15
C. Sell -100 0 0

Minimum Rate of
Return 15%

A. Develop
Year 0 1 2 3 4 5 6 7 8 9 10
-
35 10 10 15 15 15 15 15 15 15
-620 0 0 0 0 0 0 0 0 0 0
-
30
Present Values -620 4 76 66 86 75 65 56 49 43 37

PVR Analysis -372.4

NPV -372.4
IRR 4%

B. Develop
Year 0 1 2 3 4 5 6 7 8 9 10
-
40 20 20 20 20 20 20 20 20 20
-720 0 0 0 0 0 0 0 0 0 0
-
34 15 13 11
Present Values -720 8 1 2 4 99 86 75 65 57 49

PVR Analysis -237.7

NPV -237.7
IRR 9%

C. Sell
PVR -269.75

Minimum Rate of Return = 20%

 Year -2 -1 0 1 2 3 4 5 6 7 8 9 10
- - -
25 20 35 10 10 15 15 15 15 15 15 15
A. Develop -100 0 0 0 0 0 0 0 0 0 0 0 0
- - -
25 30 40 20 20 20 20 20 20 20 20 20
B. Develop -100 0 0 0 0 0 0 0 0 0 0 0 0
-
25 15
C. Sell -100 0 0

Minium Rate of
Return 20%

A. Develop
Year 0 1 2 3 4 5 6 7 8 9 10
-
35 10 10 15 15 15 15 15 15 15
-644 0 0 0 0 0 0 0 0 0 0
-
29
Present Values -644 2 69 58 72 60 50 42 35 29 24

PVR Analysis -495.5

NPV -495.5
IRR 4%

B. Develop
Year 0 1 2 3 4 5 6 7 8 9 10
-
40 20 20 20 20 20 20 20 20 20
-744 0 0 0 0 0 0 0 0 0 0
-
33 13 11
Present Values -744 3 9 6 96 80 67 56 47 39 32

PVR Analysis -405.5

NPV -405.5
IRR 9%

C. Sell
PVR -294

Question 3
Cash Flow
0 1 2 3 4
Total Investment -4150
Revenue 1500 3675 2625 862.5
Royalties -188 -459 -328 -108
Operating Cost   -60 -70 -80 -90
Net Cash Flow -4150 1253 3146 2217 665

NPV 1155
IRR 28.77%
GRR 15.08%
PI 1.29