What is the net present value and internal rate of return

Assignment Help Corporate Finance
Reference no: EM13732719

Question1. 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

Question2. 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: EM13732719

Request alumni organization membership information

Is the alumni association communicating consistently across regions (if there are multiple locations), and are representatives of the organization customizing emails to each

Write a report for the directors of jp drew

MN7542 - Financial Modelling - Determine how this information can be used to shed light on the impact of ownership structure on company performance and write a report for the

Australian stock exchange

List and briefly describe the three general areas of responsibility for a chief financial officer (CFO) of a selected non-financial company which is listed on Australian Stock

Calculate the aimed profit percentages

Calculate the aimed profit percentages for the three products and under the full absorption costing method, with overhead costs absorbed on the basis of direct labour hours.

Compute the payback period net present value

Compute the payback period, net present value, and accrual accounting rate of return with initial investment, for each proposal. Use a required rate of return of 14%.  (10 poi

Review the procedure and develop an alternate version

Referring to the Audit Procedures section (pages 25 – 27), review the procedure and develop an alternate version that clearly states how your version will be applied to the da

What trends do you see developing in the data

Has ROE been rising or falling? If so, what has contributed to this change? What trends do you see developing in the data? Do you see any major changes in the financial status

Which grant should you apply for

Assuming that your non-profit is risk-neutral, which grant should you apply for - assuming that your non-profit is risk-averse, with U(X)=sqrt(X) where X is the amount of gra


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