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MGF301 Spring 2010 Review_Sheet_Assignment 4

MGF301 Spring 2010 Review_Sheet_Assignment 4 - Assignment#4...

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Assignment #4 Review Sheet 1.(a) The payback period is the period over which the cash flows you receive equal the initial cost of the project. 1.(b) The NPV can be found by finding the PV of each cash flow and summing them up. You can use an annuity for the cash flows for periods 4-12 (be sure to discount the pv of the annuity back to time 0) or you can discount each of the years separately. 1.(c) The IRR can be found by listing all the cash flows from time 0 to time 12 in a column in excel and then using =IRR([range] ) with the entire range as inputs to the IRR function. 1.(d) Once you have determined the answers to parts a,b,c, you need to determined whether to accept the project under each rule. Apply the appropriate acceptance rule for payback, NPV and IRR to see which methods would accept and reject the project. Explain why you would accept or reject the project under each method. (Note: the methods will not always reach the same conclusions as to accept or reject).

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