a) Charity Global, Inc., commonly known as Charity Water, is a non-profit organization with headquarters in...

      

Transcribed Image Text:

a) Charity Global, Inc., commonly known as "Charity Water," is a non-profit organization with headquarters in New York, New York. The organization was founded in 2006 by Scott Harrison. Charity Water has funded over 55,000 projects around the world to provide safe drinking water to over 11 million people. Let us assume that Charity Water is in the process of deciding between two projects that will result in net cash inflows as listed in the table below. The initial cash outlay for the first project named Mega, is $20,000. The initial cash outlay for the other project named Nash, costs $32,000. Required: Which of the two projects should be chosen on the basis of the payback method? What are the limitations of that payback method? (5 marks) Year 2021 2022 2023 2024 2025 Mega $ 12,000 $ 12,000 $ 12,000 0 0 Nash $10,000 $10,000 $10,000 $15,000 $15,000 b) Use the Net Present Value technique to evaluate the Mega and Nash projects. You can assume Charity Water's cost of capital is 10%. Show your work. (5 marks) c) Which project would you recommend to Charity Water based on all your answers above? (5 marks) d) Now let us evaluate a different company. Let us assume you are working for Luckin Coffee as a financial analyst and have been asked to evaluate two new software systems. Let us assume, the company will choose one of the two software systems to implement next year. Luckin Coffee was founded in 2017 and is based in Xiamen, China. The company is considered a pioneer of the new technology-driven retail model. As such, the new software is of great importance to the company. Let us assume your Luckin colleagues in accounting have provided you the information in the table below. The operating profit associated with the "Omega" software includes a depreciation charge of ¥50,000 each year. The operating profit figures provided for the "Sigma" software do not include depreciation charges. Required: Use the Net Present Value technique to determine which software project should be chosen. You can assume the appropriate discount rate is 5%. (10 marks) Initial cost, paid at the start of 2021 2021 (Operating profit) 2022 (Operating profit) 2023 (Operating profit) Residual value at the end of 2023 "Sigma" Software "Omega" Software (¥300,000) ¥180,000 ¥180,000 ¥240,000 0 (¥600,000) ¥330,000 ¥400,000 ¥310,000 ¥200,000 a) Charity Global, Inc., commonly known as "Charity Water," is a non-profit organization with headquarters in New York, New York. The organization was founded in 2006 by Scott Harrison. Charity Water has funded over 55,000 projects around the world to provide safe drinking water to over 11 million people. Let us assume that Charity Water is in the process of deciding between two projects that will result in net cash inflows as listed in the table below. The initial cash outlay for the first project named Mega, is $20,000. The initial cash outlay for the other project named Nash, costs $32,000. Required: Which of the two projects should be chosen on the basis of the payback method? What are the limitations of that payback method? (5 marks) Year 2021 2022 2023 2024 2025 Mega $ 12,000 $ 12,000 $ 12,000 0 0 Nash $10,000 $10,000 $10,000 $15,000 $15,000 b) Use the Net Present Value technique to evaluate the Mega and Nash projects. You can assume Charity Water's cost of capital is 10%. Show your work. (5 marks) c) Which project would you recommend to Charity Water based on all your answers above? (5 marks) d) Now let us evaluate a different company. Let us assume you are working for Luckin Coffee as a financial analyst and have been asked to evaluate two new software systems. Let us assume, the company will choose one of the two software systems to implement next year. Luckin Coffee was founded in 2017 and is based in Xiamen, China. The company is considered a pioneer of the new technology-driven retail model. As such, the new software is of great importance to the company. Let us assume your Luckin colleagues in accounting have provided you the information in the table below. The operating profit associated with the "Omega" software includes a depreciation charge of ¥50,000 each year. The operating profit figures provided for the "Sigma" software do not include depreciation charges. Required: Use the Net Present Value technique to determine which software project should be chosen. You can assume the appropriate discount rate is 5%. (10 marks) Initial cost, paid at the start of 2021 2021 (Operating profit) 2022 (Operating profit) 2023 (Operating profit) Residual value at the end of 2023 "Sigma" Software "Omega" Software (¥300,000) ¥180,000 ¥180,000 ¥240,000 0 (¥600,000) ¥330,000 ¥400,000 ¥310,000 ¥200,000 a) Charity Global, Inc., commonly known as "Charity Water," is a non-profit organization with headquarters in New York, New York. The organization was founded in 2006 by Scott Harrison. Charity Water has funded over 55,000 projects around the world to provide safe drinking water to over 11 million people. Let us assume that Charity Water is in the process of deciding between two projects that will result in net cash inflows as listed in the table below. The initial cash outlay for the first project named Mega, is $20,000. The initial cash outlay for the other project named Nash, costs $32,000. Required: Which of the two projects should be chosen on the basis of the payback method? What are the limitations of that payback method? (5 marks) Year 2021 2022 2023 2024 2025 Mega $ 12,000 $ 12,000 $ 12,000 0 0 Nash $10,000 $10,000 $10,000 $15,000 $15,000 b) Use the Net Present Value technique to evaluate the Mega and Nash projects. You can assume Charity Water's cost of capital is 10%. Show your work. (5 marks) c) Which project would you recommend to Charity Water based on all your answers above? (5 marks) d) Now let us evaluate a different company. Let us assume you are working for Luckin Coffee as a financial analyst and have been asked to evaluate two new software systems. Let us assume, the company will choose one of the two software systems to implement next year. Luckin Coffee was founded in 2017 and is based in Xiamen, China. The company is considered a pioneer of the new technology-driven retail model. As such, the new software is of great importance to the company. Let us assume your Luckin colleagues in accounting have provided you the information in the table below. The operating profit associated with the "Omega" software includes a depreciation charge of ¥50,000 each year. The operating profit figures provided for the "Sigma" software do not include depreciation charges. Required: Use the Net Present Value technique to determine which software project should be chosen. You can assume the appropriate discount rate is 5%. (10 marks) Initial cost, paid at the start of 2021 2021 (Operating profit) 2022 (Operating profit) 2023 (Operating profit) Residual value at the end of 2023 "Sigma" Software "Omega" Software (¥300,000) ¥180,000 ¥180,000 ¥240,000 0 (¥600,000) ¥330,000 ¥400,000 ¥310,000 ¥200,000 a) Charity Global, Inc., commonly known as "Charity Water," is a non-profit organization with headquarters in New York, New York. The organization was founded in 2006 by Scott Harrison. Charity Water has funded over 55,000 projects around the world to provide safe drinking water to over 11 million people. Let us assume that Charity Water is in the process of deciding between two projects that will result in net cash inflows as listed in the table below. The initial cash outlay for the first project named Mega, is $20,000. The initial cash outlay for the other project named Nash, costs $32,000. Required: Which of the two projects should be chosen on the basis of the payback method? What are the limitations of that payback method? (5 marks) Year 2021 2022 2023 2024 2025 Mega $ 12,000 $ 12,000 $ 12,000 0 0 Nash $10,000 $10,000 $10,000 $15,000 $15,000 b) Use the Net Present Value technique to evaluate the Mega and Nash projects. You can assume Charity Water's cost of capital is 10%. Show your work. (5 marks) c) Which project would you recommend to Charity Water based on all your answers above? (5 marks) d) Now let us evaluate a different company. Let us assume you are working for Luckin Coffee as a financial analyst and have been asked to evaluate two new software systems. Let us assume, the company will choose one of the two software systems to implement next year. Luckin Coffee was founded in 2017 and is based in Xiamen, China. The company is considered a pioneer of the new technology-driven retail model. As such, the new software is of great importance to the company. Let us assume your Luckin colleagues in accounting have provided you the information in the table below. The operating profit associated with the "Omega" software includes a depreciation charge of ¥50,000 each year. The operating profit figures provided for the "Sigma" software do not include depreciation charges. Required: Use the Net Present Value technique to determine which software project should be chosen. You can assume the appropriate discount rate is 5%. (10 marks) Initial cost, paid at the start of 2021 2021 (Operating profit) 2022 (Operating profit) 2023 (Operating profit) Residual value at the end of 2023 "Sigma" Software "Omega" Software (¥300,000) ¥180,000 ¥180,000 ¥240,000 0 (¥600,000) ¥330,000 ¥400,000 ¥310,000 ¥200,000 a) Charity Global, Inc., commonly known as "Charity Water," is a non-profit organization with headquarters in New York, New York. The organization was founded in 2006 by Scott Harrison. Charity Water has funded over 55,000 projects around the world to provide safe drinking water to over 11 million people. Let us assume that Charity Water is in the process of deciding between two projects that will result in net cash inflows as listed in the table below. The initial cash outlay for the first project named Mega, is $20,000. The initial cash outlay for the other project named Nash, costs $32,000. Required: Which of the two projects should be chosen on the basis of the payback method? What are the limitations of that payback method? (5 marks) Year 2021 2022 2023 2024 2025 Mega $ 12,000 $ 12,000 $ 12,000 0 0 Nash $10,000 $10,000 $10,000 $15,000 $15,000 b) Use the Net Present Value technique to evaluate the Mega and Nash projects. You can assume Charity Water's cost of capital is 10%. Show your work. (5 marks) c) Which project would you recommend to Charity Water based on all your answers above? (5 marks) d) Now let us evaluate a different company. Let us assume you are working for Luckin Coffee as a financial analyst and have been asked to evaluate two new software systems. Let us assume, the company will choose one of the two software systems to implement next year. Luckin Coffee was founded in 2017 and is based in Xiamen, China. The company is considered a pioneer of the new technology-driven retail model. As such, the new software is of great importance to the company. Let us assume your Luckin colleagues in accounting have provided you the information in the table below. The operating profit associated with the "Omega" software includes a depreciation charge of ¥50,000 each year. The operating profit figures provided for the "Sigma" software do not include depreciation charges. Required: Use the Net Present Value technique to determine which software project should be chosen. You can assume the appropriate discount rate is 5%. (10 marks) Initial cost, paid at the start of 2021 2021 (Operating profit) 2022 (Operating profit) 2023 (Operating profit) Residual value at the end of 2023 "Sigma" Software "Omega" Software (¥300,000) ¥180,000 ¥180,000 ¥240,000 0 (¥600,000) ¥330,000 ¥400,000 ¥310,000 ¥200,000 a) Charity Global, Inc., commonly known as "Charity Water," is a non-profit organization with headquarters in New York, New York. The organization was founded in 2006 by Scott Harrison. Charity Water has funded over 55,000 projects around the world to provide safe drinking water to over 11 million people. Let us assume that Charity Water is in the process of deciding between two projects that will result in net cash inflows as listed in the table below. The initial cash outlay for the first project named Mega, is $20,000. The initial cash outlay for the other project named Nash, costs $32,000. Required: Which of the two projects should be chosen on the basis of the payback method? What are the limitations of that payback method? (5 marks) Year 2021 2022 2023 2024 2025 Mega $ 12,000 $ 12,000 $ 12,000 0 0 Nash $10,000 $10,000 $10,000 $15,000 $15,000 b) Use the Net Present Value technique to evaluate the Mega and Nash projects. You can assume Charity Water's cost of capital is 10%. Show your work. (5 marks) c) Which project would you recommend to Charity Water based on all your answers above? (5 marks) d) Now let us evaluate a different company. Let us assume you are working for Luckin Coffee as a financial analyst and have been asked to evaluate two new software systems. Let us assume, the company will choose one of the two software systems to implement next year. Luckin Coffee was founded in 2017 and is based in Xiamen, China. The company is considered a pioneer of the new technology-driven retail model. As such, the new software is of great importance to the company. Let us assume your Luckin colleagues in accounting have provided you the information in the table below. The operating profit associated with the "Omega" software includes a depreciation charge of ¥50,000 each year. The operating profit figures provided for the "Sigma" software do not include depreciation charges. Required: Use the Net Present Value technique to determine which software project should be chosen. You can assume the appropriate discount rate is 5%. (10 marks) Initial cost, paid at the start of 2021 2021 (Operating profit) 2022 (Operating profit) 2023 (Operating profit) Residual value at the end of 2023 "Sigma" Software "Omega" Software (¥300,000) ¥180,000 ¥180,000 ¥240,000 0 (¥600,000) ¥330,000 ¥400,000 ¥310,000 ¥200,000

Answer rating: 100% (QA)

a Payback Method The payback method determines the time it takes for a project to recoup its initial investment To calculate the payback period we sum up the net cash inflows until the cumulative cash ... View the full answer