* 72%- 6:15 PM T-Mobile LTE Meme 24 (10 points) Your first assignment in your ne
ID: 2798140 • Letter: #
Question
* 72%- 6:15 PM T-Mobile LTE Meme 24 (10 points) Your first assignment in your new position as assistant financial analyst at RR Products is to evaluate nsignment, you have been asked not only to provide a recommendation but also to EXPLAIN TOUR DECISION, aimed at assessing your understanding of the capital-budgeting process. Both two new capital-budgeting proposals. Because this is your 1 hese projects involve additions to RR Product's highly successful product line, and as a result the requred rate of return on both pojects has been established at 12%. The expected cash flows from each project e as follows: Project B $200,000 $64,000 564,000 64,000 Project A Initial Outlay $110,000 $20,000 Inflow Yr 2 30,000 40,000 50,000 0,000 564,000 Here is your What is the NPV Inet cash flowl for Project A? b. What is the NP for Project B? c. what is the Rfor project B. ORR for Project A is 20.97%) you can do both c projects, what should you do? EXPLAIN e. you can do one but not both, what should you do? EXP ARL o00Explanation / Answer
a.
b.
c.
Now, looking for value 3.125 in PVAF table.
The value is between 18% & 19%.
Now, NPV @ 18% = 64,000 * PVAF(18%,5y) - 200,000
64,000 * 3.127 - 200,000 = 139
NPV @ 19% = 64,000 * PVAF(19%,5y) - 200,000
64,000 * 3.0.58 - 200,000 = -4,311
After Interpolation,
The IRR of Project of B is 18.03%
c. Both the projects are good, if both the projects can be taken up, both should be taken as both are giving good returns and IRR of both the projects is higher than the cost of capital.
d. If only one project can be taken up. Project A should be taken as its NPV and IRR both are higher than the Project B and hence, is expected to perform better than Project B.
Cost/Investment 110000 Rate 12% Tenure 5 Year Cashflows PV Factor PV of Cashflows 0 -110000 1.000 -110000 1 20000 0.893 17857 2 30000 0.797 23916 3 40000 0.712 28471 4 50000 0.636 31776 5 70000 0.567 39720 Net Present Value 31740Related Questions
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