Answer To: I would for each tab to be completed in Formula and the complete answers. I would like to have the...
Sugandh answered on Apr 02 2021
P10-22
P10–22 Payback, NPV, and IRR Rieger International is evaluating the feasibility of investing $95,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal, as shown in the following table. The firm has a 12% cost of capital. Particulars Year Cash Flow PVF @ 12% PV PVF @ 15 % PV PVF @ 16% PV Cumlative Cash Flow
Year (t) Cash inflows (CFt) Initial investment 0 95000 1 $ 95,000.00 1 $ 95,000.00 1 $ 95,000.00
1 $20,000 Present value of cash inflows $ 95,000.00 $ 95,000.00 $ 95,000.00 $ 95,000.00
2 $25,000
3 $30,000 Cash Inflows
4 $35,000 Cash Inflows 1 $20,000 0.8928571429 $ 17,857.14 0.8695652174 $ 17,391.30 0.8620689655 $ 17,241.38 $ -75,000.00
5 $40,000 Cash Inflows 2 $ 25,000.00 0.7971938776 $ 19,929.85 0.7561436673 $ 18,903.59 0.7431629013 $ 18,579.07 $ -50,000.00
a. Calculate the payback period for the proposed investment. Cash Inflows 3 $ 30,000.00 0.7117802478 $ 21,353.41 0.6575162324 $ 19,725.49 0.6406576735 $ 19,219.73 $ -20,000.00
b. Calculate the net present value (NPV) for the proposed investment. Cash Inflows 4 $ 35,000.00 0.6355180784 $ 22,243.13 0.5717532456 $ 20,011.36 0.5522910979 $ 19,330.19 $ 15,000.00
c. Calculate the internal rate of return (IRR), rounded to the nearest whole percent, for the proposed investment. Cash Inflows 5 $ 40,000.00 0.5674268557 $ 22,697.07 0.4971767353 $ 19,887.07 0.4761130154 $ 19,044.52 $ 55,000.00
d. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why? Present value of cash inflows 150000 3.6047762023 $ 104,080.60 $ 95,918.82 $ 93,414.89
Net Present value Inflow - Outflow $ 9,080.60 $ 918.82 $ -1,585.11
Particulars
A) PAYBACK PERIOD 3.5714285714 Number of years of full recovery + ( Uncovered cost at the start of year / Cash Flow during the recovery year)
B) NPV $ 9,080.60 Discounting @12 %
C) IRR 15.37% Where NPV = 0 Lower Rate of return +NPV of lower rate *( Difference in the rate of Discount / Present Value )
D) Evaluation Acceptable As NPV Is positive and the IRR is more than the Cost of capital it is win win project
P10-25
P10–25 All techniques with NPV profile: Mutually exclusive projects Projects A and B, of equal risk, are alternatives for expanding Rosa Company’s capacity. The firm’s cost of capital is 13%. The cash flows for each project are shown in the following table. Formula Project A Project B
a. Calculate each project’s payback period. Number of years of full recovery + ( Uncovered cost at the start of year / Cash Flow during the recovery year) 3.6666666667 4.3333333333
b. Calculate the net present value (NPV) for each project. PV Inflow - PV Outflow @ 13% $ 6,056.72 $ 2,758.47
c. Calculate the internal rate of return (IRR) for each project. Lower Rate of return +NPV of lower rate *( Difference in the rate of Discount / Present Value ) 14.62% 15.76%
d. Draw the net present value profiles for both projects on the same set of axes, and discuss any conflict in ranking that may exist between NPV and IRR.
e. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why. Accept Reject
It is providing better results in all the secnario
Project A
Project A Project B Particulars Year Cash Flow PVF @ 13% PV PVF @ 15 % PV PVF @ 14% PV Cumlative Cash Flow
Initial investment (CF0) 80000 50000 Initial investment 0 80000 1 $ 80,000.00 1 $ 80,000.00 1 $ 80,000.00
Year (t) Cash inflows (CFt) Present value of cash inflows $ 80,000.00 $ 80,000.00 $ 80,000.00 $ 80,000.00
1 $15,000 $15,000
2 20000 $15,000 Cash Inflows
3 25000 $15,000 Cash Inflows 1 $15,000 0.8928571429 $ 13,392.86 0.8695652174 $ 13,043.48 0.8771929825 $ 13,157.89 $ -65,000.00
4 30000 $15,000 Cash Inflows 2 $20,000 0.7971938776 $ 15,943.88 0.7561436673 $ 15,122.87 0.7694675285 $ 15,389.35 $ -45,000.00
5 35000 $15,000 Cash Inflows 3 $25,000 0.7117802478 $ 17,794.51 0.6575162324 $ 16,437.91 0.6749715162 $ 16,874.29 $ -20,000.00
Cash Inflows 4 $30,000 0.6355180784 $ 19,065.54 0.5717532456 $ 17,152.60 0.5920802774 $ 17,762.41 $ 10,000.00
Cash Inflows 5 $35,000 0.5674268557 $ 19,859.94 0.4971767353 $ 17,401.19 0.5193686644 $ 18,177.90 $ 45,000.00
Project A Project B Present value of cash inflows 125000 3.6047762023 $ 86,056.72 $ 79,158.04 $ 81,361.84
Initial investment (CF0) 80000 50000 Net Present value Inflow - Outflow $ 6,056.72 $ -841.96 $ 1,361.84
NPV $6,057 $2,758
IRR 14.618% 15.758% Project B
Particulars Year Cash Flow PVF @ 13% PV PVF @ 15 % PV PVF @ 16% PV Cumlative Cash Flow
Initial investment 0 50000 1 $ 50,000.00 1 $ 50,000.00 1 $ 50,000.00
Present value of cash inflows $ 50,000.00 $ 50,000.00 $ 50,000.00 $ 50,000.00
Cash Inflows
Cash Inflows 1 $15,000 0.8849557522 $ 13,274.34 0.8695652174 $ 13,043.48 0.8620689655 $ 12,931.03 $ -35,000.00
Cash Inflows 2 $15,000 0.7831466834 $ 11,747.20 0.7561436673 $ ...