The purpose of this assignment is to allow the student to
calculate the project cash flow using net present value (NPV), internal rate of
return (IRR), and the payback methods.
Assignment Steps
Resources: Corporate
Finance
Create a 350-word memo to
management including the following:
- Describe the use of internal
rate of return (IRR), net present value (NPV), and the payback method in
evaluating project cash flows. - Describe the advantages and
disadvantages of each method.
Calculate the following time value of money problems:
- If you want to accumulate
$500,000 in 20 years, how much do you need to deposit today that pays an
interest rate of 15%? - What is the future value if you
plan to invest $200,000 for 5 years and the interest rate is 5%? - What is the interest rate for
an initial investment of $100,000 to grow to $300,000 in 10 years? - If your company purchases an
annuity that will pay $50,000/year for 10 years at a 11% discount rate,
what is the value of the annuity on the purchase date if the first annuity
payment is made on the date of purchase? - What is the rate of return
required to accumulate $400,000 if you invest $10,000 per year for 20
years. Assume all payments are made at the end of the period.
Calculate the
project cash flow generated for Project A and Project B using the NPV method.
- Which project would you select,
and why? - Which project would you select
under the payback method? The discount rate is 10% for both projects. - Use Microsoft® Excel® to
prepare your answer. - Note that a similar problem is
in the textbook in Section 5.1.
Sample Template for Project A and Project B:
Show all work. INCLUDE
INTRO AND CONCLUSION WITH THREE REFERENCES
Submit the memo and all
calcluations.
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