Homework: Assignment 5 Score: 0 of 10 pts P10-27 (similar to) 9 of 10 (5 complet
ID: 2818865 • Letter: H
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Homework: Assignment 5 Score: 0 of 10 pts P10-27 (similar to) 9 of 10 (5 complete) HW Score: 41.67%, 41.67 of 10 Question Help Integrative- Conflicting Rankings The High-Flying Growth Company (HFGC) has been growing very rapidly in recent years, making its shareholders rich in the process. The average annu rate of return on the stock in the last few years has been 19%, and HFGC managers believe that 10% is a reasonable figure for the firm's cost or capita. To susan a hig g with rate the CEO argues that the company must continue to invest in projects that offer the highest rate of return possible. Two projects are currently under review. The first is an expansion of the firm's production capacity, and the second project involves introducing one of the firm's existing products into a new market. Cash flows from each project appear in the following table: a. Calculate the NPV for both projects. Rank the projects based on their NPVs b. Calculate the IRR for both projects. Rank the projects based on their IRRS. c Calculate the Pi for both projects. Rank the projects based on their Pls d. The firm can only afford to undertake one of these investments. What do you think the firm should do? a. The NPV of the plant expansion project is Round to the nearest dollar) Enter your answer in the answer box and then click Check Answer aming Clear AllExplanation / Answer
Ans a)
Plant expansion has higher NPV then product introduction.
Ans b)
Product Introduction has higer IRR than plant expansion so product introduction is better.3
Ans C) PI = (NPV + Intial Investment) /Intial investment
PI for plant expansion = (3900000 + 2716002)/3900000 = 1.696
PI for product introduction = (500000 + 358387.81)/500000 = 1.717
product introduction has better PI than plant expansion.
Ans d) Since the NPV of plant expansion is greater than product introduction, company should go with plant expansion .
19% Year 0 1 2 3 4 CashFlow for Plant Expansion $ (3,900,000.00) $ 1,750,000.00 $ 3,000,000.00 $ 3,000,000.00 $ 2,500,000.00 Present value $ (3,900,000.00) $ 1,470,588.24 $ 2,118,494.46 $ 1,780,247.44 $ 1,246,671.88 NPV $ 2,716,002.01 Year 0 1 2 3 4 CashFlow for Product Introduction $ (500,000.00) $ 275,000.00 $ 400,000.00 $ 350,000.00 $ 275,000.00 Present value $ (500,000.00) $ 231,092.44 $ 282,465.93 $ 207,695.53 $ 137,133.91 NPV $ 358,387.81Related Questions
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