Your team was hired to analyse and estimate two alternative investment proposals. The first proposal calls...

   

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Your team was hired to analyse and estimate two alternative investment proposals. The first proposal calls for a major renovation of the company's manufacturing facility. The second involves replacing just a few obsolete pieces of equipment in the facility. The company will choose one project or the other this year, but it will not do both. The cash flows associated with each project appear below and the firm discounts project cash flows at 10%. Year Renovate 0 1 2 3 4 5 -$6,000,000 2,200,000 2,000,000 1,600,000 1,800,000 1,800,000 Replace -$2,400,000 1,900,000 800,000 320,000 160,000 120,000 1. Calculate the net present value (NPV) of each project and based on this criterion, indicate which project you would recommend for acceptance. (4 points) 2. Calculate the discounted payback period of each project and based on this criterion, indicate which project you would recommend for acceptance. (4 points) 3. Calculate the internal rate of return (IRR) of each project and based on this criterion, indicate which project you would recommend for acceptance. (4 points) 4. Calculate the profitability index (PI) of each project and based on this criterion, indicate which project you would recommend for acceptance. (4 points) 5. Overall, you should find conflicting recommendations based on the various criteria. Why is this occurring? (4 points) 6. Chart the NPV profiles of these projects. For each project, label and interpret the intersection points of the NPV profiles with the x- and y-axes and the crossover point. (6 points) 7. Based on this NPV profile analysis and assuming the WACC is 10%, which project(s) would you recommended for acceptance? Why? (2 points) 8. Based on this NPV profile analysis and assuming the WACC is 16%, which project is recommended? Why? (2 points) 9. Discuss the important elements to consider when deciding between these two projects. (6 points) Conclusion (4 point) The conclusion should provide a clear and concise summary of the report. It should cover the following points: It should sum up what the report has covered (covering both Parts A and B). It should summarise the main findings and conclusions of the report (covering both Parts A and B). It should highlight the implications of the findings and the insights gained (i.e., what you learned) from the analyses in the report (covering both Parts A and B). ● ● ● Your team was hired to analyse and estimate two alternative investment proposals. The first proposal calls for a major renovation of the company's manufacturing facility. The second involves replacing just a few obsolete pieces of equipment in the facility. The company will choose one project or the other this year, but it will not do both. The cash flows associated with each project appear below and the firm discounts project cash flows at 10%. Year Renovate 0 1 2 3 4 5 -$6,000,000 2,200,000 2,000,000 1,600,000 1,800,000 1,800,000 Replace -$2,400,000 1,900,000 800,000 320,000 160,000 120,000 1. Calculate the net present value (NPV) of each project and based on this criterion, indicate which project you would recommend for acceptance. (4 points) 2. Calculate the discounted payback period of each project and based on this criterion, indicate which project you would recommend for acceptance. (4 points) 3. Calculate the internal rate of return (IRR) of each project and based on this criterion, indicate which project you would recommend for acceptance. (4 points) 4. Calculate the profitability index (PI) of each project and based on this criterion, indicate which project you would recommend for acceptance. (4 points) 5. Overall, you should find conflicting recommendations based on the various criteria. Why is this occurring? (4 points) 6. Chart the NPV profiles of these projects. For each project, label and interpret the intersection points of the NPV profiles with the x- and y-axes and the crossover point. (6 points) 7. Based on this NPV profile analysis and assuming the WACC is 10%, which project(s) would you recommended for acceptance? Why? (2 points) 8. Based on this NPV profile analysis and assuming the WACC is 16%, which project is recommended? Why? (2 points) 9. Discuss the important elements to consider when deciding between these two projects. (6 points) Conclusion (4 point) The conclusion should provide a clear and concise summary of the report. It should cover the following points: It should sum up what the report has covered (covering both Parts A and B). It should summarise the main findings and conclusions of the report (covering both Parts A and B). It should highlight the implications of the findings and the insights gained (i.e., what you learned) from the analyses in the report (covering both Parts A and B). ● ● ●

Answer rating: 100% (QA)

1 Net Present Value NPV Calculation To calculate the NPV of each project we discount the cash flows at a rate of 10 and subtract the initial investment The higher the NPV the more favorable the projec... View the full answer