integrative conticting Rankings The High-Pyng o th Company HFGC) has been g g ve
ID: 2620223 • Letter: I
Question
integrative conticting Rankings The High-Pyng o th Company HFGC) has been g g very rapdy i recent years. malang ts shareholders ch i the process The average an ual ate eum on the stock in the ast fe years as been 22% and HF C managers beseve ??? 2 % areasonatie tore to ne t ms oost ofca na To sustain a h gro r ase the HF C CEO a pues at the company must com ue to nve?i pro ects that atitie h est ate of etum possese Two pe acts are cu erty under rev ew The first is an e penson ofthyhm's producton capacty. andthe second preed moves ntroduang one ofthe firms e strg products nto?new market Cash 5ows ho meach proect appear thefolomg table a. Caloulate the INPV for both projects Rank the projects based on their NPWs b. Calculate he IRR for both projects Rank he projects based on their IRRS . Calculase the Pl for bot preiects Rank he projects based on their Pis d The firm can only aord to underone of these investments What do you think the fim should do Data Table a. Tha NPV of the plant espansion project is s Round to the neares oa) The NPy of the product nrooucion project issRound to the nearest oa) According to the NPV method, which project shouid the firm choose? (Select the best answer below Clck on the icon located on the top-night comer of the data table below in order to copy les contents ino a spreadsheet) 1750 000 $2 500.000 250.000 O Pant expansion O Product introduction TheiRR ofthe plant expansion proiect ?.Rond to two decinal places) The IRR of the product neroduction preject is Rond to two decimal place Aocording to the IRR method, which project should the fim choose? (Select the best answer below O Product introduction Print DoneExplanation / Answer
Plant expansion
Product introduction
Year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 22%
Year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 22%
0
-3200000
-3200000
0
-500000
-500000
1
1750000
1434426
1
350000
286885.2
2
2500000
1679656
2
250000
167965.6
3
3000000
1652121
3
350000
192747.4
4
1500000
677098.6
4
250000
112849.8
NPV
sum of present value of cash flow
2243302
NPV
sum of present value of cash flow
260448
NPV
Rank
Plant expansion
2243302
1
Product introduction
260448
2
Project Plant expansion should be accepted on the basis of NPV
Plant expansion
Product introduction
Year
cash flow
Year
cash flow
0
-3200000
0
-500000
1
1750000
1
350000
2
2500000
2
250000
3
3000000
3
350000
4
1500000
4
250000
IRR = Using IRR function in MS excel =irr(-3200000,1750000,2500000,3000000,1500000)
55.82%
IRR = Using IRR function in MS excel =irr(-500000,350000,250000,350000,250000)
49.62%
IRR
Rank
Plant expansion
55.82%
1
Product introduction
49.62%
2
Project plant expansion should be accepted on the basis of IRR
Profitability index
Plant expansion
Product introduction
PI = 1+(NPV/cost of plant expansion)
1+(2243302/3200000)
1.701032
PI = 1+(NPV/cost of plant expansion)
1+(260448/500000)
1.520896
PI
Rank
Plant expansion
1.70
1
Product introduction
1.52
2
project plant expansion should be accepted on the basis of PI
On the basis of all the techniques company should choose - Plant expansion as it results in maximum benefits
Plant expansion
Product introduction
Year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 22%
Year
cash flow
present value of cash flow = cash flow/(1+r)^n r= 22%
0
-3200000
-3200000
0
-500000
-500000
1
1750000
1434426
1
350000
286885.2
2
2500000
1679656
2
250000
167965.6
3
3000000
1652121
3
350000
192747.4
4
1500000
677098.6
4
250000
112849.8
NPV
sum of present value of cash flow
2243302
NPV
sum of present value of cash flow
260448
NPV
Rank
Plant expansion
2243302
1
Product introduction
260448
2
Project Plant expansion should be accepted on the basis of NPV
Plant expansion
Product introduction
Year
cash flow
Year
cash flow
0
-3200000
0
-500000
1
1750000
1
350000
2
2500000
2
250000
3
3000000
3
350000
4
1500000
4
250000
IRR = Using IRR function in MS excel =irr(-3200000,1750000,2500000,3000000,1500000)
55.82%
IRR = Using IRR function in MS excel =irr(-500000,350000,250000,350000,250000)
49.62%
IRR
Rank
Plant expansion
55.82%
1
Product introduction
49.62%
2
Project plant expansion should be accepted on the basis of IRR
Profitability index
Plant expansion
Product introduction
PI = 1+(NPV/cost of plant expansion)
1+(2243302/3200000)
1.701032
PI = 1+(NPV/cost of plant expansion)
1+(260448/500000)
1.520896
PI
Rank
Plant expansion
1.70
1
Product introduction
1.52
2
project plant expansion should be accepted on the basis of PI
On the basis of all the techniques company should choose - Plant expansion as it results in maximum benefits
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.