paper we were asked to utilize quantitative analysis to perform 5 year and 10 year cash flow calculations utilizing internal rate of return IRR and Net present value to strategically determine which analysis yields the best fit for the project at hand. Keywords: cost modeling, cash flows, projects, quantitative, analysis, IRR, Internal rate of return, NPV, Net Present Value Developing a baseline schedule for a project is important; in addition the aforementioned it’s also necessary to develop
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Capital budgeting techniques: In making decisions regarding investment in a certain project, a number of techniques referred to as capital budgeting techniques namely net present value (NPV), profitability index (PI), internal rate of return (IRR) and payback period are used. The net present value (NPV) is defined as the discounted present value of a project’s future cash flows. This means that for the project to be viable, the present value of invested cash should be positive that is the present
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capital is 10% for average-risk projects, defined as projects with a coefficient of variation of NPV between 0.8 and 1.2. Low-risk projects are evaluated with a WACC of 8%, and high-risk projects at 13%. a. Develop a spreadsheet model, and use it to find the project’s NPV, IRR, and payback. Key Output: NPV = Part 1. Input Data (in thousands of dollars) IRR = MIRR = Equipment cost $10,000 Net WC/Sales 10% Market value
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through 2009. Analysis 1. Does this project make sense? We like the insourcing proposal and think that it makes business sense for several reasons. However, these reasons are based off of the information taken from the case before we analyzed NPV, IRR, or Payback Period, so they are strictly inferences made using sound business sense. First, we think insourcing is a good strategic move on the basis of having inconsistent and weak suppliers. When the suppliers you are working with are neither
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inventory) and NWC will rise to 18% of sales. The NWC will be recovered at the end of the project. The required return is 10 percent, and the tax rate is expected to be 42 percent. Requirements 1. Using an Excel spreadsheet: • Find the NPV and the IRR of the Zed Box project using the pro forma financial statement method to determine cash flows. • Enter the input variables in cells of their own at
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| 10,037 | | | | | | | | | 54,316 | Capital investment | | | | | | | | 48,000 | Net present value | | | | | | | | $6,316 | Using financial calculator: CF0=-48,000; C01=8,000; F01=7; C02 = 28,000; F02 = 1; I = 9; CPT NPV = 6,315.88 (b) In order to meet the cash payback criteria, the project would have to have a cash payback period of less than 5.6 years (8 × 70%). It does not meet the criteria. However, the net present value is positive, suggesting the project should
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next ten years, we found that the MMDC expansion would have a higher NPV and IRR than the DYOD project. Furthermore, since MMDC requires a less amount for its initial investment than DYOD, it yields a higher profitability index, while having a smaller payback period. MMDC is less risky because it has less of a chance to incur a loss and will pay back the initial investment faster. If the discount rate is raised on the project, the NPV of the DYOD line decreases at a much faster rate than that of MMDC
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When cash inflows are even: |NPV = R × |1 − (1 + i)-n |− Initial Investment | | |i | | In the above formula, R is the net cash inflow expected to be received each period; i is the required rate of return per period; n are the number of periods during which the project is expected to operate and generate cash inflows. When cash inflows are uneven: NPV = | |R1 |+ |R2 |+ |R3 |+ ... | |− Initial Investment | | | |(1 + i)1
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WACC will change both the NPV and the IRR. b) To find the MIRR, we first compound cash flows at the regular IRR to find the TV, and then we discount the TV at the WACC to find the PV. c) The NPV and IRR methods both assume that cash flows can be reinvested at the WACC. However, the MIRR method assumes reinvestment at the MIRR itself. d) If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the higher IRR probably has more of its cash
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Value (NPV) rule and state its criteria. 2. Define Payback period method and state its rule. 3. State the pitfalls of payback period method. 4. What is opportunity cost? Give examples. 5. Define Internal Rate of Return (IRR) and its rule. 6. Define Profitability Index (PI) and its rule. 7. State the similarities and differences between NPV and IRR. 8. State the three pitfalls of IRR. 9. Explain Mutually Exclusive projects. 10. State Why there are multiple IRRs form
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