LEMON is the company that sells fruit to poor people. The following budget net cash flows relate
Question:
“LEMON” is the company that sells fruit to poor people.
The following budget net cash flows relate to two marketing projects in 6 years:
NET CASH FLOWS (IN $ 1,000,000) | |||||||
YEAR PROJECT A PROJECT B | 0 -60 -72 | 1 20 45 | 2 20 22 | 3 0 0 | 4 20 13 | 5 20 13 | 6 20 13 |
Requirements:
(i) Calculate the NPVs for each project, assuming 10% cost of capital. Which project is better to invest, why? (P4).
(ii) What is the IRR, Payback and ARR of each project which has a zero value after 6 years? In each result, which project is better to invest? why? (P4)
(iii) What are the advantages and disadvantages of using NPV and Payback (P4)?
(iv) In this company case, which tools we should apply when preparing the budget? Why? Give at least two tools that you think it is applicable to the company. (M3)
(v) To manage the business risk, the Boss need you to consult how to reduce the difference between budgeting and actual in forecasting, bases on the data provided in this case as well as Fruit market information. (D2)
Expert Answer:
1 NPV for project A 60000000 20000000101 200000001012 200000001013 200000001014 200000001015 200000001016 30469565 NPV for project B 72000000 45000000101 220000001012 130000001013 130000001014 1300000... View the full answer
