1. Calculate the Payback Period of each project. Explain what argument Tim should make to show...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1. Calculate the Payback Period of each project. Explain what argument Tim should make to show that the Payback Period is not appropriate in this case. 2. Calculate the Discounted Payback Period (DPP) using 10% as the discount rate. Should Tim ask the Board to use DPP as the deciding factor? Explain. 3. Calculate the two projects' IRR. How should Tim convince the Board that the IRR measure could be misleading? 4. Construct the NPV profiles for the two projects and explain the relevance of the crossover point. How should Tim convince the Board that the NPV method is the way to go? 5. Explain how Tim can show that the Modified Internal Rate of Return is the more realistic measure to use in the case of mutually exclusive projects. 6. Calculate the Profitability Index for each proposal. Can this measure help to solve the dilemma? Explain. 7. In looking over the documentation prepared by the two project teams, it appears to you that the synthetic resin team has been somewhat more conservative in its revenue projections than the epoxy resin team. What impact might this have on your analysis? 8. In looking over the documentation prepared by the two proje teams, it appears to you that the synthetic resin technology would require extensive development before it could be implemented whereas the epoxy resin technology is available "off-the-shelf." What impact might this have on your analysis? Net Income Depreciation Net Cash Flow Net Income Depreciation Net Cash Flow Year 0 -$1,000,000 Year 0 -$800,000 Table 1: Synthetic Resin Year 1 $150,000 $200,000 $350,000 Year 2 $200,000 $200,000 $400,000 Year 1 $440,000 $160,000 $600,000 Table 2: Epoxy Resin Year 2 $240,000 $160,000 Year 3 $300,000 $200,000 $500,000 $400,000 Year 3 $140,000 $160,000 $300,000 Year 4 $450,000 $200,000 $650,000 Year 4 $40,000 $160,000 $200,000 Year 5 $500,000 $200,000 $700,000 Year 5 $40,000 $160,000 $200,000 1. Calculate the Payback Period of each project. Explain what argument Tim should make to show that the Payback Period is not appropriate in this case. 2. Calculate the Discounted Payback Period (DPP) using 10% as the discount rate. Should Tim ask the Board to use DPP as the deciding factor? Explain. 3. Calculate the two projects' IRR. How should Tim convince the Board that the IRR measure could be misleading? 4. Construct the NPV profiles for the two projects and explain the relevance of the crossover point. How should Tim convince the Board that the NPV method is the way to go? 5. Explain how Tim can show that the Modified Internal Rate of Return is the more realistic measure to use in the case of mutually exclusive projects. 6. Calculate the Profitability Index for each proposal. Can this measure help to solve the dilemma? Explain. 7. In looking over the documentation prepared by the two project teams, it appears to you that the synthetic resin team has been somewhat more conservative in its revenue projections than the epoxy resin team. What impact might this have on your analysis? 8. In looking over the documentation prepared by the two proje teams, it appears to you that the synthetic resin technology would require extensive development before it could be implemented whereas the epoxy resin technology is available "off-the-shelf." What impact might this have on your analysis? Net Income Depreciation Net Cash Flow Net Income Depreciation Net Cash Flow Year 0 -$1,000,000 Year 0 -$800,000 Table 1: Synthetic Resin Year 1 $150,000 $200,000 $350,000 Year 2 $200,000 $200,000 $400,000 Year 1 $440,000 $160,000 $600,000 Table 2: Epoxy Resin Year 2 $240,000 $160,000 Year 3 $300,000 $200,000 $500,000 $400,000 Year 3 $140,000 $160,000 $300,000 Year 4 $450,000 $200,000 $650,000 Year 4 $40,000 $160,000 $200,000 Year 5 $500,000 $200,000 $700,000 Year 5 $40,000 $160,000 $200,000
Expert Answer:
Answer rating: 100% (QA)
Answer Lets address each question one by one 1 Payback Period Project with Synthetic Resin Year ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
Students also viewed these accounting questions
-
The Day-Pro Chemical Corporation, established in 1995, has managed to earn a consistently high rate of return on its investment. The secret of its success has been the strategic and timely...
-
On June 1, 2018, Brady purchased an option to buy 1,000 shares of General, Inc. at $40 per share. He purchased the option for $3,000. It was to remain in effect for five months. The market...
-
In view of the information provided below provide suggestions for the efficient management of trade debtors. INFORMATION MANAGEMENT OF TRADE DEBTORS Debtor management is central to the effective cash...
-
You are given the following information about two stocks: (a) Calculate the mean and standard deviation for each stock. (b) Compare the mean, standard deviation, and coefficient of variation of each...
-
Fred Blan started a business by issuing a $70,000 face value note to First State Bank on January 1, 2012. The note had a 7 percent annual rate of interest and a five-year term. Payments of $17,072...
-
What is the price of a European put option on a non-dividend-paying stock when the stock price is $99, the strike price is $101, the continuously compounded risk-free rate is 2% per annum, the...
-
Bravman Clothing sells high-end clothing products and is launching a service in which they use a same-day courier service to deliver purchases that customers have made by working with one of their...
-
Multiple-Choice Questions 1. As manager of a company that is trying to maximize long-run profit, which of the following is a rational profit-maximizing business decision? a. In the long run, shut...
-
Why is the course developmental psychology an important pre-requisite for psychopathology course. Why is knowing developmental psychology important in diagnosis?
-
The finance director for the City of Green Falls printed the General Fund Revenues and Appropriations Ledgers shown below for the year just ended. The beginning-of-the-year fund balance was $160,160....
-
Calculate basic earnings per share and diluted earnings per share for the following information C company had not income for fiscal year ending Dec 31,2019 of 3.4 million. There were 2 million common...
-
You are now planning to establish ABC Company which requires total investment of $8 million. Assume interest rate on borrowing (before tax) is 3%, cost of equity is 8% and tax rate is 30%. ('1)...
-
What is the price of a stock that just paid a $5 dividend yesterday and it dividends are expected to grow at a rate of 3% per annum forever? Assume that the cost of capital is 10% 2)Because of your...
-
Ricardo and Kathy Mendez divorced in 2 0 1 3 . Under the divorce decree, Ricardo is required to pay alimony of $ 3 , 0 0 0 per month and child support for their daughter, Sheri, of $ 2 , 0 0 0 per...
-
Adam would like to purchase a home. To help finance the purchase, he will borrow $300,000 from a bank. The bank will charge 6% annual interest, compounded monthly (0.005 per month). The mortgage loan...
-
Visit Cinnaholic to learn more about the company. Review Module 4, Unit 4 - How to Create a Customer Persona. Create a report for the following components: Identify and create a Marketing Mix (4Ps)...
-
An unknown radioactive element decays into non-radioactive substances. In 140 days the radioactivity of a sample decreases by 34 percent. (a) What is the half-life of the element? half-life: (days)...
-
Determine the annual percentage yield for a loan that charges a monthly interest rate of 1.5% and compounds the interest monthly.
-
Mo's Delicious Burgers Inc. sells food to university cafeterias for $15 a box. The fixed costs of this operation are $80,000, while the variable cost per box is $10. a. What is the break-even point...
-
The Resolute Bay Shipping News is selling for $65.00 the day before the stock goes ex-dividend. The annual dividend yield is 5.5 percent, and the dividends are paid quarterly. Based solely on the...
-
Marty Not is going to borrow $8,000 for 120 days and pay $215 in interest. What is the annual rate of interest if the loan is discounted?
-
Birth weights in the United States are normally distributed with a mean (in grams) of 3420 g and a standard deviation of 495 g. If you graph this normal distribution, the area to the right of 4000 g...
-
Is the distribution of those digits a normal distribution? Why or why not?
-
Many states have lotteries that involve the random selection of digits 0, 1, 2, ,
Study smarter with the SolutionInn App