{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Assignment_7 - what discount rate would the company be...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
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
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

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)...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern