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
Premium Net present value
The Basics of Capital Budgeting Integrated Case Study Allied Components Company You recently went to work for Allied Components Company‚ a supplier of auto repair parts used in the after-market with products from Daimler‚ Chrysler‚ Ford‚ and other automakers. Your boss‚ the chief financial officer (CFO)‚ has just handed you the estimated cash flows for two proposed projects. Project L involves adding a new item to the firm’s ignition system line; it would take some time to build up the
Premium Net present value Internal rate of return
[Cumulative Cash Flows after t =0] to exceed [Cash Flow at t=0] B. The internal rate of return (IRR) is the rate at which [Sum of Discounted Cash Flows from t=1 to t=n] = [Cash Flow at t=0] C. The net present value is NPV is the sum of all Discounted Cash Flows‚ including the initial cash flow. D. The profitability index (PI) is the (Sum of Discounted Cash Flows from t=1 to t=n)/(Cash Flow at t=0). The NPV‚ IRR‚ and PI all give the same decision regarding whether or not to accept a single project with
Premium Net present value Internal rate of return
Investment Analysis and Lockheed Tri Star Problem Sets February 25‚ 2013 1a. The results of NPV‚ payback and IRR calculations are the following. For payback method‚ Rainbow Product will pay back the original investment costs after 7 years. Net Present Value is -$946 and IRR is 11.49%. Rainbow Products should not purchase the machine according to the results of NPV and IRR calculation. The net present value of purchasing this new equipment is negative‚ and the internal rate of return is less than
Premium Net present value Internal rate of return
organizations use financial methods to determine the viability of projects and decisions based in the initial required investment. The financial industry has many standards regarding these methods‚ with the most commonly used being Internal Rate of Return (IRR) and Net Present Value (NPV). Each method encompasses positives and negatives; however if either are used without fully understanding what their prospective results reveal‚ mistakes can be made and under-estimations of return will happen. In a recent
Premium Net present value Investment
Dr. Ellis English 1101 19 October 2011 A Dream Come True It was a sunny clear morning in Orlando‚ Florida. The sun‚ shaped like a fresh Florida orange‚ was like a guiding light to our destination. The kids were in the back trying to hold in the excitement‚ but it seemed to be coming through their pores. The freshly polished Chevy Tahoe could not move fast enough down the last stretch of the road. Soon we began to see colorful oversized signs‚ and we knew that we were not far from Walt Disney
Premium Walt Disney World Resort Magic Kingdom Walt Disney
help of a few questions that guide my memo‚ I will be able to determine whether or not to continue funding for the Merseyside Project. This memo will include an exhibit that will show an analysis of the Merseyside Project including the NPV and the IRR. In the DCF analysis that was provided in the case I have made a few changes to it and that will be presented later in my memo. First I will like to talk about how Diamond Chemicals evaluate its capital expenditure proposals. Before submitting a
Premium Carbon Diamond Atom
allow the company to remain in the leisure craft market and utilize its established selling network. To determine which of the two projects are financially more pleasing we need to use calculations to determine the value of the beta‚ WACC‚ NPV and IRR. Fist we want to calculate the net working capital (NWC). The NWC turnover ratio for this new operation was expected to be 6:1.( NWC turnover = Sales/ NWC = 6/ 1 = 3‚500‚000 / NWC. Thus‚ NWC = $ 583‚333.33); then we find the project outboard’s beta
Premium Weighted average cost of capital Net present value
A) Why is the investment appraisal process so important? Capital Investment Appraisal is of fundamental importance because: 1. Large Amount of Company Resources: Involvement of large amount of company resources and efforts which will necessitate careful evaluation to be undertaken before a decision is reached. 2. Maximization of Shareholder wealth: Investment decision is linked with strategic and tactical business decisions and therefore need to achieve desired long-term objectives. The
Premium Net present value
equipment or a building. IRR The higher a projects internal rate of return‚ the more desirable it is to invest in the project. Some ways to use the IRR method are: • Discounted Cash Flow Analysis - Find the interest rate return that you would receive as your investment return rate. • Capital Budget Planning - Go through the capital budget process so that you make the best economic decision. • Discounted Cash Flow Analysis - When you calculate IRR you will have one number for
Premium