Assignment%202_Winter%202008

Assignment%202_Winter%202008 - AK/ADMS3530 3.0 Assignment#2...

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AK/ADMS3530 3.0 Assignment #2 Winter 2008 Instructions: (1) This assignment is to be done individually. You must sign and submit the standard cover page supplied as the last page of this assignment . (2) Before you start, please read the note “ Writing Style Required for ADMS3530 Assignments ” posted in the “Assignments” folder on the course web site. Please stick to the writing guidelines suggested in the note. (3) This assignment is due at the start of the last class . (4) For Internet section students, the assignment must be uploaded to the Centre for Distance Education: http://www.atkinson.yorku.ca/cde/assignmentupload and identified precisely in accordance with the course outline by Tuesday, April 1, 2008, midnight. (5) This assignment is to be either handwritten or printed out. Work that is too difficult to read due to messiness and poor handwriting will receive zero credit. You must show your work to receive full credit. (6) This assignment carries a total mark of 100 points. (7) Late assignments will not be accepted whether for technical or any other reason. (8) Decimal places: please keep at least 4 in your calculations and 2 in your final answers. Question 1 (NPV and other investment criteria) (18 marks) In parts a) and b) below consider the following project. Cost: C 0 = $10,000,000. Annual net cash inflows: C 1 = C 2 = C 3 = C 4 = C 5 = $3,000,000. Project life: N = 5. Required rate of return: 15%. Maximum payback: 4 years. (a) Compute the NPV, PI and Payback for the above project. And indicate whether the project should be accepted based on each of these three criteria and briefly justify your answers. (5 marks) (b) Suppose that you later discover that at the end of the project it will cost $2,000,000 to shut down the project. How would this affect the decision to accept or reject the project based on the NPV and payback criteria? Briefly discuss your results. (4 marks)
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ADMS3530 3.0 Winter 2008 Assignment #2 Part c) below is independent of both parts a) and b) above.
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Assignment%202_Winter%202008 - AK/ADMS3530 3.0 Assignment#2...

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