Reference no: EM131513059
Complete the information requested in parts (a) and (b). Then answer questions 1-4 as outlined
The CFO of Advo Corporation is considering two investment opportunities. The expected future cash inflows for each opportunity follow:
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Year 1
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Year 2
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Year 3
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Year 4
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,1
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Project 1
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$144,000
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$147,000
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$160,003
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$178000
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Project 2
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204,000
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114,000
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112,000
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199,000
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Both investments require an initial payment of 5400,000. Advo's desired rate of return is 16 percent.
A. Compute the net present value of each project. Which project should Advo adopt based on the net present value approach.
B. Use the incremental revenue summation method to compute the payback period for each project. Which project should Advo adopt based on the payback approach?
Next answer the following questions related to capital investment proposals.
Questions 1-4 have a minimum of 150 words and must included a detailed explanation and understanding of the material, as well as being supported by at least two scholarly references each.
(1) What is meant by the expression, time value of money?
(2) Why should all capital investment proposals include time value of money (present value) calculations of future cash flows that are to be received from the alternative investments?
(3) Some non-financial factors included in capital investment decisions are more important now than they were 20-25 years ago. Give some examples of the types of non-financial factors that managers would consider more important in today's capital investment decisions than they were in the past.
(4) What level of management would be involved in making capital investment decisions? Why? Why are these decisions more critical than day-to-day decisions made by individuals and companies?