What is internal rate of return - payback period

Assignment Help Corporate Finance
Reference no: EM13735692

Question 1. Graphically show and explain the following terms, how you could link them to capital budgeting techniques in your decision making.

a. Sensitivity Analysis

b. Scenario Analysis

Question 2. Alborz Company manufactures a variety of Lollies. The company is considering introducing a new product (Lolly Choc). The company's manager has been provided with the following information by their business analyst.

- The project has an anticipated economic life of 6 years.

- The Company plans to spend $1,250,000 on advertising campaign to boost sales.

- The Company's interest expense each year will be $425,000.

- The Company is required to purchase a new machine to produce the new product. The machine's initial cost is $6,600,000. The machine will be depreciated on a straight - line basis over 6 years. The Company anticipates that the machine will last for 10 years, the salvage value after 6 years is $550,000.

- Six months ago the Company also paid $530,000 to a firm to do research regarding new product.

- If the Company goes ahead with the new product, it will have an effect on the Company's net operating capital. The forecasted net working capital will be $250,000 (at time zero)

- The new product is expected to generate sales revenue of $1,250,000, $2,500,000 $3,250,000, $4,500,000, $5,500,000 and $6,000,000 in year 1, 2, 3, 4, 5 and 6 respectively

Each year the operating cost (not including depreciation) expected to equal 25 percent of sales revenue.

- In addition the Company expects with introduction of new product, sale of other Lollies increase by $500,000 after taxes each year.

- The Company's overall WACC is 7 percent. However, the proposed project is riskier than the average project; the new project's WACC is estimated to be 8 percent.

- The Company's tax rate is 30 percent.

- What is the net present value, internal rate of return, payback period, discounted payback period, and profitability index of the proposed project. Based on your analysis should the project be accepted? Discuss.

Verified Expert

Reference no: EM13735692

Discuss fully the causes and the cures of financial distress

Discuss fully the causes and the cures of financial distress. What is mezzanine financing? What are its characteristics? When is such financing used and what type of firm is

Calculate barbows after-tax weighted average cost

Calculate Barbows after-tax weighted average cost of capital, using the data in the balance sheet - One of the first items they want to examine is their cost of capital. Accor

Should the company fund a working capital

what are some of the issues Felicia and Fred can do to optimally manage? What are the risks of poor management of the element you selected - should the company fund a working

Find coleman''s overall or weighted average

Computation of cost of capital ignoring the floatation costs - WACC and Find Coleman's overall, or weighted average, cost of capital (WACC)? Ignore flotation costs.

Prepare liquidators final statement

Under the Articles of Association of the Company, the preference shareholders have the right to receive one-third of the surplus remaining after repaying the equity share ca

Calculate revised eva for both years

This should not affect costs but will begin to affect the market assessment of Brewster Company, bringing the premium above long-term Treasury bills to 10% the first year an

Abbreviated financial statements for archimedes levers

Abbreviated financial statements for Archimedes Levers are shown in the table below. Assume sales increase by 14% in 2014 and all other items, including debt, increase co

Categorize each ratio as leverage liquidity or activity

Categorize each ratio as leverage, liquidity, activity or profitability ratio. Discuss you results about each ratio of both companies. Present graphically and in tabular form


Write a Review

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd