change is if they used a different cost of capital. 3. Calculate the proposed project’s IRR. Explain the rationale for using the IRR to evaluate capital investment projects. Could the IRR for this project differ for GP Manufacturing versus for another customer? IRR = 14.32% The higher the rate‚ the better. IRR is a good indicator of whether a company should accept a long term investment. Ideally‚ you want the IRR to be greater than the
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Period (n) =10 years At IRR‚=10%‚Net Present Value of Investment=0 i.e. Present Value of 10 years Cash Flow-Initial Investment=0 Initial Investment =Present Value of 10 year Cash Flow We will get Present value of 10 year equal cash flow(CF) using annuity formula Initial Investment=CF*(1-(1+IRR)^(-n))/IRR $212000=CF*(1-(1+10%)^(-10))/10% CF=$212000*10%/(1-0.385543) CF=$212000*10%*0.614457 CF=$345020.6 So Polaris must earn =$345020.6 from these projects for 10 years so that IRR becomes 10% Ques 2 .
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value. B) Choose Proposal A because it has the highest IRR. C) Choose Proposal A because it has the highest NPV. D) Choose Proposal B because it has the highest IRR. E) Choose Proposal B because it has the highest NPV. Answer: A [NPV for A: $(2‚548); NPV for B: $(3‚892)] 2. You’re evaluating a proposed business project and you want to know what is the Internal Rate of Return. Based on the following estimated Free Cash Flows and the IRR method‚ would this project be accepted? Your required
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1. Payback Period of each project Tim can show that the payback period is not appropriate in the analysis of the projects for the following reasons. First‚ it does not properly account for the time value of money‚ risk financing and other important considerations such as opportunity cost and it does not consider the cost of capital. It does not specify any required comparison to other investments or even to not making an investment. The method is an indication of both the risk and the liquidity
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to Rainbow of $5‚000 per year. Themachine costs $35‚000 and is expected to last for 15 years. Rainbow has determined that the cost ofcapital for such an investment is 12%.[A] Compute the payback‚ net present value (NPV)‚ and internal rate of return (IRR) for this machine.Should Rainbow purchase it? Assume that all cash flows (except the initial purchase) occur at the endof the year‚ and do not consider taxes. Rainbow Products is considering the purchase of a paint-mixing machine to reduce labor costs
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Case 20: PEPSICO CHANGCHUN JOINT VENTURE Capital Expenditure Analysis Study Questions Q1. Use the information in the case to construct two sets of NPV and IRR analysis from joint venture view and Pepsico. Based on the results‚ what would be your decision on the proposed Changchun joint venture? Q2. Comment on the financial projections that PepsiCo used in its capital budgeting exercise‚ especially the NOPBT Cap‚ foreign exchange rate projection and the discount rate. Q3. What differences might
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present value decreased as the discount rate increased. The net present value crosses the horizontal line at approximately 42%‚ just before the Modified internal rate of return of 42.72%. 1b) What is the projects internal rate of return? Answer: IRR = 4.4184% If the discount
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Evaluate the proposal In order to evaluate the aircraft proposal we need to calculate the NPV and IRR of both the Aircraft purchasing and leasing option. Investment decisions determine the future cash flows of a company and expected future cash flows determine the value of a company. In order to calculate the NPV we first needed to get a cost of capital. We calculated the Weighted Average Cost of Capital in order to measure the firm’s cost of capital. When calculating the WACC for the Aircraft
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[pic] MASTER of BUSINESS ADMINISTRATION ECONOMICS FOR MANAGERS MTKM 5033 CAPITAL BUDGETING BY; MOHD FIRDAUS IBRAHIM M061310005 NORZAHFRAN NORJAMAL M061310034 ABU HANIFAH BIN A. JALAL M061310004 INSTRUCTOR; DR. SENTOT IMAM WAHJONO Table of content Page___ CAPITAL BUDGETING DEFINED 3 Categories of investment THE CAPITAL BUDGETING PROCESS 4 CAPITAL BUDGETING DECISION RULES 5 New project decision rules of capital
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the projects NPV and IRR given the size of the investment‚ opportunity market/growth‚ and with the overall goal of adding 100 new stores a year while maintaining. The Barn was my first choice because it had the highest IRR and second highest NPV given a not so large investment. Whalen Court has the highest NPV and offers favorable market share opportunities and demographics. These first two are considered good options to continue Targets growth. Gopher Place has attractive IRR and NPV comparable to
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