Net Present Value Discounted Year Poofy Puffs Filling Fiber Poofy Puffs Filling

Net present value discounted year poofy puffs filling

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Net Present Value: Discounted Year Poofy Puffs Filling Fiber Poofy Puffs Filling Fiber 0 -24,890,000 -13,500,000 1 12,950,000 7,230,000 $11,772,727 $6,572,727 2 10,923,000 8,100,000 $9,027,273 $6,694,215 3 8,231,000 8,629,000 $6,184,072 $6,483,095 4 7,242,000 5,238,900 $4,946,383 $3,578,239 Sum = $31,930,456 $23,328,277 Poofy Puffs: NPV = PV inflows – PV outflows = $31,930,456 – $24,890,000 = $7,040,456. Filling Fiber: NPV = $23,328,277 – $13,500,000 = $9,828,277. Internal Rate of Return: Poofy Puffs: $0 = -$24,890,000 + $ 12 , 950 , 000 ( 1 + r ) 1 + $ 10 , 923 , 000 ( 1 + r ) 2 + $ 8 , 231 , 000 ( 1 + r ) 3 + $ 7 , 242 , 000 ( 1 + r ) 4 r = 24.09% Filling Fiber : $0 = -$13,500,000 + $ 7 , 230 , 000 ( 1 + r ) 1 + $ 8 , 100 , 000 ( 1 + r ) 2 + $ 8 , 629 , 000 ( 1 + r ) 3 + $ 5 , 238 , 900 ( 1 + r ) 4 r = 41.54% Profitability Index: PI = PV inflows ÷ PV outflows PI Poofy Puffs = $31,930,456 ÷ $24,890,000 = 1.28 PI Filling Fiber = $23,328,277 ÷ $13,500,000 = 1.73 Analysis: The minimum required payback period is 1.75 years, therefore both projects would be rejected using the payback and discounted payback period. Based on the NPV method, both projects would be acceptable as the net present values are positive. Both projects are acceptable using the IRR method as well, as the IRRs are greater than 10%. Also, the profitability index (PI) is greater than 1.0 for both projects, thus both are acceptable using that criterion. Of course, since both of these projects are independent and ‘normal,’ one would not expect the NPV, IRR or PI methods to conflict. Technically, there is not a scaling issue with these two projects as the NPV method and the IRR method rank Filling Fiber as the better project. Since the projects are independent, the firm should proceed with both of them.
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Final numbers: Poofy Puffs Filling Fiber NPV 7,040,456 9,828,277 PI 1.28 1.73 IRR 24.09% 41.54% MIRR 17.068% 26.12% Payback 2.12 years 1.77 years Discounted Payback 2 years and 8 months 2 years and 4.8 months.
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