Stategic Management

Financial Management Assignment

` KRESNO SETIANTO ACCOUNTING 2 008201100042

Jababeka Education Park, Jalan Ki Hajar Dewantara, Cikarang – Bekasi 17550

QUESTION NUMBER 1 Year Project A Project B 1 2,400,000 3,000,000 2 3,000,000 4,000,000 3 4,000,000 2,500,000 4 3,200,000 2,000,000 5 1,800,000 1,200,000
The project costs $8m and $9m respectively and the company’s cost of capital is 14%.

1.A. Determine PVs of the project * NPV of Project A = -8.000.000+(2.400.000/(1,14))+(3.000.000/(1,14)2)+(4.000.000/(1,14)3)
+(3.200.000/(1,14)4) +(1.800.000/(1,14)5) = 1.943.072,3 * NPV of Project B = -9.000.000+(3.000.000/(1,14))+(4.000.000/(1,14)2)+(2.500.000/(1,14)3)
+(2.000.000/(1,14)4) +(1.200.000/(1,14)5) = 204.281,8

B. Determine the projects’ internal rate of return * IRR of Project A
= -8.000.000+(2.400.000/(1+IRR%))+(3.000.000/(1+IRR%)2)+(4.000.000/
(1+IRR%)3) +(3.200.000/(1+IRR%)4) +(1.800.000/(1+IRR%)5)

* IRR of Project B = -9.000.000+(3.000.000/(1+IRR%))+(4.000.000/(1+IRR%)2)
+(2.500.000/(1+IRR%)3) +(2.000.000/(1+IRR%)4) +(1.200.000/(1+IRR%)5)

C. Determine the payback periods of project * Project A

YEAR | CASH FLOW | PAYBACK | 0 | -8.000.000 | -8.000.000 | 1st | 2.400.000 | -5.600.000 | 2nd | 3.000.000 | -2.600.000 | 3rd | 4.000.000 | 1.400.000 | 4th | 3.200.000 | 4.600.000 | 5th | 1.800.000 | 6.400.000 |
Payback Period :
= 2 + (2.600.000)/4.000.000)
= 2 + 0,65
= 2,65 * Project B YEAR | CASH FLOW | PAYBACK | 0 | -9.000.000 | -9.000.000 | 1st | 3.000.000 | -6.000.000 | 2nd | 4.000.000 | -2.000.000 | 3rd | 2.500.000 | 500.000 | 4th | 2.000.000 | 2.500.000 | 5th | 1.200.000 | 3.700.000 |
Payback Period :
= 2+(2.00.000)/2.500.000)
= 2+0,8
= 2,8
D. Determine the discounted payback periods of the project * Project A YEAR | CASH FLOW | PV or CF | | 0 | -8.000.000 | -8.000.000 | -8.000.000