Thinking 4. Evaluate the strengths and weaknesses of the Cash Payback Period‚ Discounted Cash Payback Period‚ NPV‚ IRR and MIRR capital expenditure budgeting methods. Prepare a recommendation for Stewart regarding the capital budgeting method or methods to use in evaluating the expansion alternatives. Support your answer. Capital budgeting techniques such as payback period‚ net present value (NPV)‚ internal rate of return (IRR) and modified internal rate of return (MIRR) all offer particular strengths
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Zhong 1> A. Payback‚ NPV‚ IRR‚ Should purchase or not? Payback: $35‚000/5000=7 year NPV: =Co+ C1…..n/(1+i)^1….n Co=-3‚5000 CF1-CF15= 5‚000; I= 12 Computing result is $-945.67 IRR: 11.49% NPV is negative and IRR is lower 12% so reject the proposal. B. NPV: =Co+ C1…..n/(1+i)^1….n NPV= -35000+(4500/.12) =2500 NPV is positive so should purchase the machine. C. NPV: =Co+ C1…..n/(1+i)^1….n = -35‚000(4000/(0.12-0.04)) =-35‚000+50‚000 =15‚000 NPV is positive so rainbow should
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platform? Net present Value of the Garage’s cash flow with Platform: NPV = £ 173‚614 Net present Value of the Garage’s cash flow with Platform: NPV = £ 38‚047 i. Should the garage manager buy the platform? Garage manager should buy the platform because‚ the productivity of the mechanics and profitability of the firm will increase as a result of the acquiring the platform. This will also positively affect to the NPV of the company cash flows and we can see it in above result. 2. The
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after tax cost savings and salvage value of the system. 2. What is the project’s NPV? Explain the economic rationale behind the NPV. Could the NPV of this particular project be different for GP Manufacturing than for one of Chino Material Systems Inc.’s other potential customers? Explain. NPV = $20‚578 NPV is a measure of profitability of an investment. If NPV is positive‚ the company should accept the project. The NPV would be the same for everyone if values were the same because it is just an estimate
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(A) The payback is 35‚000/5‚000= 7 years Computation of the NPV : 15 NPV= -35‚000 + Σ 5‚000 / ( 1 + 12%)^ 15 i=1 NPV = $- 947. 67 Computation of the IRR : 15 0= -35‚000 + Σ 5‚000 / ( 1 + IRR)^ 15 i=1 IRR= 11.49% The NPV of this project is negative and the IRR is lower then the Cost of Capital (12%) Rainbow products shouldn’t go for
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years b) The discounted Payback Period is 5.58 years c) The Internal Rate of Return (IRR) of the machine is 13.87% d) The Net Present Value (NPV) is $1‚136‚020.85 e) The Profitability Index (PI) associated with the project is 1.14 If we make decision based on NPV or IRR or PI‚ we should accept this project. This is because the project has a positive NPV‚ its PI over 1 and the IRR is more than the required rate of return. All of this factors mean that the project can actually benefit the company
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nationalities. Neither black men‚ Japanese men nor Chinese men were as likely to develop MPHL as frequantly as Caucasian men‚ at least not until later ages. What Propecia is competing against in consumer’s mind is that‚ according to the research Merck did‚ consumers believe hair loss to be a slow process and they do not seek treatment early enough‚ at least not before trying a couple remedies of their own including brushing‚ wearinh hats‚ combing the hari over bold spots‚ which is mainly because
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943 .890 Present value $6‚020 $4‚880 $9‚532 NPV $20‚432 11. a. Year 0 Year 1 Year 2 Year 3 Year 4 Before-tax cash flow $(500‚000) $52‚500 $47‚500 $35‚500 $530‚500 Tax cost (7‚875) (7‚125) (5‚325) (4‚575) After-tax cash flow 44‚625 40‚375 30‚175 525‚925 Discount factor (7%) .935 .873 .816 .763 Present value $(500‚000) $41‚724 $35‚247 $24‚623 $401‚281 NPV $2‚875 Investor W should make the investment because NPV is positive. b. Year 0 Year 1 Year 2 Year
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(NEM). First of all‚ under normal condition‚ this project could contribute around $73 million to the shareholder. The return will be more than 85% over the entire period. Furthermore‚ this project is quite stable because it can deliver a positive NPV for NEM when the iron ore price above $65.83 which is around 17% lower than basic price and more than 50% lower than the current price‚ smelting‚ refining and freight cost below $76.3 just below 60% higher than basic condition‚ the EBIT has to drop
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rate is 10 percent. The ranking of projects differs‚ depending on the use of IRR or NPV measures. Which project should be selected? Why is the IRR ranking misleading? Using the IRR method will result in project Q being selected over P due to its higher rate of return. Using the NPV method would result in choosing project P because of its higher NPV. When there are mutually exclusive project‚ NPV method would be preferred. IRR is misleading because it ignores the absolute amount from the
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