Yr Sates of Affairs Cash Flow Mcarthys Cash Flow Gotham Cash Flow 0 -$7,500,000
ID: 2717436 • Letter: Y
Question
Yr
Sates of Affairs
Cash Flow
Mcarthys
Cash Flow
Gotham
Cash Flow
0
-$7,500,000
-$5,000,000
-$4,000,000
1
$5,000,000
$1,000,000
$5,750,000
2
$4,500,000
$2,000,000
$5,750,000
3
$3,000,000
$3,000,000
-$1,000,000
4
-$1,000,000
$4,000,000
$0.00
5
$2,500,000
$4,000,000
6
$2,500,000
Required rate of return: 8.00%
Calculate the payback period for each project. If our required payback period is 3 years which projects will we accept?
Calculate the Net Present Value of each project. Which projects should we accept?
Calculate the Internal rate of return for each project. Which projects should be accepted?
Calculate the Modified Internal Rate of Return for each project. Which projects should be accepted?
Calculated the Profitability Index for each project. Which projects should be accepted?
If the company only has$10,000,000 for projects which project(s) should be accepted using the equivalent Annual Annuity? Report the EEA for each project?
Yr
Sates of Affairs
Cash Flow
Mcarthys
Cash Flow
Gotham
Cash Flow
0
-$7,500,000
-$5,000,000
-$4,000,000
1
$5,000,000
$1,000,000
$5,750,000
2
$4,500,000
$2,000,000
$5,750,000
3
$3,000,000
$3,000,000
-$1,000,000
4
-$1,000,000
$4,000,000
$0.00
5
$2,500,000
$4,000,000
6
$2,500,000
Explanation / Answer
State of Affairs = 2+(-2,500,000/4,500,000) = 0.44 years
Mcarthys = 2+(-2,000,000/3,000,000) = 1.33 years
Gotham = 1 year
If our payback period is 3 years then we should accept State of Affairs project as it paying back early on our investments made.
Net Present Value:- Using excel
State of Affairs = $5,911,003.25
Mcarthys = $5,684,552.49
Gotham = $5,459,940.05
State of Affairs project should be accepted
Internal rate of return :-
State of Affairs = 40%
Mcarthys = 36%
Gotham = 107%
Onseeing Gotham Project seems to be more profitable
Modified internal rate of retun
For this I need Finance rate and reinvestment rate
Profitability Index
State of Affairs
Mcarthy
Gotham
Gotham Project should be accepted since PI is hih for this project.
If the company only has$10,000,000 for projects which project(s) should be accepted using the equivalent Annual Annuity? Report the EEA for each project?
C = r*(NPV)/1-(1+R)^-n
Where
C = equivalent Annual Annuity
NPV = Net Present Value
r = rate per period
N = number of periods
State of Affairs
C = 0.08*10,000,000/1-(1.08)^-6
C = $2,163,153.86
Mcarthy
C = 0.08*10,000,000/1-(1.08)^-5
C = $2,504,564.55
Gotham
C = 0.08*10,000,000/1-(1.08)^-4
C = $3,019,208.04
Gotham project should be accepted
State of affairs Cumulative Cashflows Mcarthys Cumulative Cashflows Gotham Cumulative Cashflows (7,500,000.00) (7,500,000.00) (5,000,000.00) (5,000,000.00) (4,000,000.00) (4,000,000.00) 5,000,000.00 (2,500,000.00) 1,000,000.00 (4,000,000.00) 5,750,000.00 1,750,000.00 4,500,000.00 2,000,000.00 2,000,000.00 (2,000,000.00) 5,750,000.00 7,500,000.00 3,000,000.00 5,000,000 3,000,000.00 1,000,000.00 (1,000,000.00) 6,500,000.00 (1,000,000.00) 4,000,000 4,000,000.00 5,000,000.00 0 6,500,000.00 2,500,000.00 6,500,000 4,000,000.00 9,000,000.00 2,500,000.00 9,000,000Related Questions
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