FINANCE
Assignment_7

# Assignment_7 - FIN254 Assignment#7(Based on Chapter 9...

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FIN254 FIN254 Assignment#7 (Based on Chapter 9) Assignment#7 (Based on Chapter 9) 1. You are thinking about expanding your food business by building a new manufacturing plant. The plant has an installation cost of \$18 million which will be fully depreciated in 4years. If the plant has forecasted net income of \$1632, \$2106.5, \$1941.7 and \$1298 THOUSAND over the four years, what is the project’s AAR? 2. Unilever has identified the following two mutually exclusive projects: Year Cash flow-A (in thousands of dollar) Cash flow-B (in thousands of dollar) 0 -37 -37 1 19 6 2 14.5 12.5 3 12 19 4 9 23 a. What is the IRR for each of the projects? Using the IRR decision rule, which project should the company accept? Is the decision necessarily correct? b. If the required return is 11%, what is the NPV of each of the projects? Which project will the company choose if it applies the NPV rule? c. Over what rate range of discount rates would the company choose project A? Project B? At
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Unformatted text preview: what discount rate would the company be indifferent between two projects? Explain. 3. Consider the following two mutually exclusive projects-Year Cash flow-A (in thousands of dollar) Cash flow-B (in thousands of dollar)-350-35 1 25 17 2 70 11 3 70 17 4 430 11 Explain which investment you will choose and WHY if you require 15% return on your investment… 1. If you apply payback 2. If you apply discounted payback 3. If you apply NPV 4. If you apply IRR 5. If you apply profitability. 4. North South is evaluating a project with the following cash flows-Year Cash flow-A (in thousands of dollar)-12 1 5.8 2 6.5 3 6.2 4 5.1 5-4.3 The company uses 10% discount rate. Calculate MIRR using all three methods discussed in the book. Due Date: 27 Due Date: 27 th th November, 2011 (Sunday) November, 2011 (Sunday)...
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