A snack food manufacturer is planning to introduce three products simultaneously. Investments and…

A snack food manufacturer is planning to introduce three products simultaneously. Investments and per year cash flow are given for each:

Cash Flow Per Year

Initial Investment For 5 Years Payback

1. Potato Chips -$5 million $1.60 million 4 Years
2. Popcorn -$2 million $0.75 million 3 Years
3. Granola Bars -$11 million $3.25 million 4 Years

Note that according to the payback rule, Project Popcorn is best. What about NPV? Which of the following correctly ranks the NPV of these 3 projects – from highest NPV to lowest NPV? Use a required rate of return of 10% for each project.

A: Potato Chips, Granola Bars, Popcorn

B: Granola Bars, Popcorn, Potato Chips

C: Granola Bars, Potato Chips, Popcorn

D: Popcorn, Potato Chips, Granola Bars

E: Potato Chips, Popcorn, Granola Bars

Which of the following comes closest to the IRR for the Popcorn Project?

1. 40.4%
2. 25.4%
3. 15.4%
4. 10.4%
5. 5.4%