Assume that your group is working Financial Team of a seafood exports company. Your company is...
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Assume that your group is working Financial Team of a seafood exports company. Your company is considering to buy a new machinery for canning of seafood products. Two options of machinery are recommended by your company suppliers. The two options that can generate similar annual revenue but incur different initial investments and annual expenses. Your company's Management Board requested your financial team to recommend a project evaluation method and perform it to select one of the options. The table below shows the estimated cash flows available for each option: Option A ($) 1,420,000 Year 3 Year 4 Year 5 Option B ($) $1,530,000 Initial Investment Annual cost, including electricity, maintaining and other relevant expenses Year 1 36,000 39,000 Year 2 36,000 39,000 36,000 39,000 36,000 39,000 39,000 You are required to write a short report to the company's Management: 1) To select a relevant method among five investment criteria of Net Present Value (NPV), Equivalent Annual Cost (EAC), profitability Index (PI), Internal Rate of Return (IRR), Simple Payback Period, and Discounted Payback Period for this project, given the discount rate applied for all project is xxx % (to be provided later) and the company's benchmark of payback is maximum 3 years. Your recommendation must include your justification on why you choose the specific method based on its pros and cons compared to other methods, the BOM's concern of efficiency and the financial circumstance of the company. (2 marks) 2) To perform the selected method and present the outcome of your project evaluation and recommend the Option A or B should the company choose for this project. Your justification must include calculation steps and numerical outcomes. (5 marks) Assume that your group is working Financial Team of a seafood exports company. Your company is considering to buy a new machinery for canning of seafood products. Two options of machinery are recommended by your company suppliers. The two options that can generate similar annual revenue but incur different initial investments and annual expenses. Your company's Management Board requested your financial team to recommend a project evaluation method and perform it to select one of the options. The table below shows the estimated cash flows available for each option: Option A ($) 1,420,000 Year 3 Year 4 Year 5 Option B ($) $1,530,000 Initial Investment Annual cost, including electricity, maintaining and other relevant expenses Year 1 36,000 39,000 Year 2 36,000 39,000 36,000 39,000 36,000 39,000 39,000 You are required to write a short report to the company's Management: 1) To select a relevant method among five investment criteria of Net Present Value (NPV), Equivalent Annual Cost (EAC), profitability Index (PI), Internal Rate of Return (IRR), Simple Payback Period, and Discounted Payback Period for this project, given the discount rate applied for all project is xxx % (to be provided later) and the company's benchmark of payback is maximum 3 years. Your recommendation must include your justification on why you choose the specific method based on its pros and cons compared to other methods, the BOM's concern of efficiency and the financial circumstance of the company. (2 marks) 2) To perform the selected method and present the outcome of your project evaluation and recommend the Option A or B should the company choose for this project. Your justification must include calculation steps and numerical outcomes. (5 marks)
Expert Answer:
Answer rating: 100% (QA)
a Option A Initial Investment 1420000 Annual cost including electricity maintaining and other relevant expenses Year 1 36000 Year 2 39000 Year 3 39000 ... View the full answer
Related Book For
Fundamentals of Investments
ISBN: 978-0132926171
3rd edition
Authors: Gordon J. Alexander, William F. Sharpe, Jeffery V. Bailey
Posted Date:
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