You are responsible to make a recommendation to the college regarding the upcoming capital projects.  Be sure to evaluate each project using payback, NPV, IRR and PI capital budgeting techniques.We do not have enough money to do both projects, please evaluate both and make your recommendation. Both projects will require an original cash investment of $5,000,000.   We are considering an ice rink (project A) and a new residential hall with a commuter lounge (Project B).  The ice rink will provide revenue of $2,000,000 and the new hall $1,500,000 year one.  For the ice rink, cash inflow will be $500,000 years 1 & 2, $600,000 years 3 & 4 and $750,000 each year 5 and beyond.   The new hall will have cash inflow of $800,000 years 1, 2, &3  and 500,000 each additional year after that.    The college has a payback policy of 5 years and our cost of capital is 10%.    Assume each project will have a 10-year useful life.

Question

You are responsible to make a recommendation to the college regarding the upcoming capital projects.  Be sure to evaluate each project using payback, NPV, IRR and PI capital budgeting techniques.We do not have enough money to do both projects, please evaluate both and make your recommendation. Both projects will require an original cash investment of $5,000,000.   We are considering an ice rink (project A) and a new residential hall with a commuter lounge (Project B).  The ice rink will provide revenue of $2,000,000 and the new hall $1,500,000 year one.  For the ice rink, cash inflow will be $500,000 years 1 & 2, $600,000 years 3 & 4 and $750,000 each year 5 and beyond.   The new hall will have cash inflow of $800,000 years 1, 2, &3  and 500,000 each additional year after that.    The college has a payback policy of 5 years and our cost of capital is 10%.    Assume each project will have a 10-year useful life.

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