In: Finance

the following techniques for analyzing projects:

- Payback Rule
- Discounted Payback Period
- Net Present Value
- Internal Rate of Return

Why must corporate managers use multiple techniques of project evaluation?

Which technique is most commonly used and why?

Describe several ways the techniques above can be used as one progresses in their professional career. (Identify specific types of projects that can be analyzed and discuss the advantages and disadvantages of using the techniques above)

To achieve goal of cost-effective allocation of capital, investors use different methods to assess the rationality of investment. Although the most comprehensive method is the NPV method, however, based on the information available, corporate managers may use alternative methods with inherent advantages and disadvantages as follows:

1. Payback Period: It is the quickest method and provides quick estimate of the time needed for the company to get back the money invested in the project The length of the project payback period helps in estimating the project risk. However, it ignores the time value of money and may cause company to place importance on projects with short payback period neglecting the need to invest in long-term project.

2. Discounted Payback:Some companies prefer to calculate the payback period as it considers the time value of money.

3. IRR: IRR does not account for changing discount rates without modification , so it is not adequate for longer-term projects with discount rates expected to vary. Further, it doesn't take into account changing factors such as different discount rates and net present value would be more beneficial.

4. NPV Method: The advantage to using the NPV method over IRR using the example above is that NPV can handle multiple discount rates without any issue.

The net present value shows how profitable a project will be versus comparable scenarios and alternatives and is the most effective method.

Calculate? (a) net present? value, (b) payback? period, (c)
discounted payback? period, and? (d) internal rate of return.
Cost of the equipment
$166,000
Reduced labor costs
$45,000
Estimated life of the equipment
10
years
Terminal disposal value
?$0
?After-tax cost of capital
12
?%
Tax rate
20
?%
Assume depreciation is calculated on a? straight-line basis for
tax purposes. Assume all cash flows occur at? year-end except for
initial investment amounts.
Calculate? (a) net present? value, (b) payback? period, (c)...

Determine the Payback Period, the Discounted Payback Period, and
the Net Present Value for the following after-tax cash flow
projections. Also tell me whether the IRR is greater or less then
the RRR.
A. Year ATCF
0 $(60,000)
1 21,000
2 27,000
3 24,000
4 16,000
Assume a 16% required rate of return

Determine the Payback Period, the Discounted Payback Period, and
the Net Present Value for the following after-tax cash flow
projections. Also tell me whether the IRR is greater or less then
the RRR
B. Year ATCF
0 (100,000)
1 (320,000)
2 130,000
3 185,000
4 200,000
5 195,000
6 150,000
Assume a 20% required rate of return

For the following two projects, determine the
Payback Period
Discounted Payback
Net Present Value
Profitability Index (Benefit-Cost Ratio)
Internal Rate of Return
Modified Internal Rate of Return
Project A
Project B
Year
Net Income
Cash Flow
Net Income
Cash Flow
0
(15,000)
(19,000)
1
5,000
6,000
3,000
4,000
2
5,000
6,000
5,000
6,000
3
5000
6,000
7,000
8,000
4
5,000
6,000
11,000
12,000
Risk Index
1.80
.60
The firm’s cost of capital ko is 15% and the risk
free...

Calculate the discounted payback, net present value, and
internal rate of return for the following cash flows. -60, -50, 6,
45, 60, 70, 60, 45, 20. Discount rate at 7%. Please show work for
the internal rate of return calculation.

Capital Budgeting Assignment
For the following two projects, determine the
Payback Period
Discounted Payback
Net Present Value
Profitability Index (Benefit-Cost Ratio)
Internal Rate of Return
Modified Internal Rate of Return
Project A
Project B
Year
Net Income
Cash Flow
Net Income
Cash Flow
0
(15,000)
(19,000)
1
5,000
6,000
3,000
4,000
2
5,000
6,000
5,000
6,000
3
5000
6,000
7,000
8,000
4
5,000
6,000
11,000
12,000
Risk Index
1.80
.60
The firm’s cost of capital ko is 15% and...

Please Calculate the WACC, the discounted payback period, and
the net present value for the following scenario. Show all work and
clearly show how you came to your answers.
A municipal stadium owned by a city stadium authority is
thinking about updating it's grass field to turf. New turf will
cost $750,000. A local company has offered to give you $100,000 to
put their logo on the turf, which you will happily take if you
decide to go forward with...

Payback Period, Net Present Value, and Internal Rate of
Return
An organization’s initial outlay for a
proposed project is $2,000,000. Use the table below to calculate
the payback period, net present value, and internal rate of return
for the project.
Free Cash Flows
Year
Amount
Year
Amount
1
$0.00
6
$0.00
2
$0.00
7
$0.00
3
$1,000,000.00
8
$500,000.00
4
$50.00
9
$500,000.00
5
$750,000.00
10
$500,000.00
As the CEO of the organization, if the
firm’s cost of capital is...

Calculate the net present value, internal rate or return and
payback period for an investment project with the following cash
flows using a 5 percent cost of capital:
Year
0
1
2
3
Net Cash Flow
-$150,000
$62,000 $62,000 $62,000
Do you recommend the investment?

Calculate the payback period, net present value, profitability
index, and internal rate of return for Project A. Assume a discount
rate of 20%. Should the firm accept or reject Project A? Explain.
If the firm must choose between Project A and Project B, which is
the better choice? Explain. Under what circumstances should the
modified internal rate of return be used instead of the standard
internal rate of return?
Project A
Project B
Year
Cash Flow
Year
Cash Flow
0...

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