1. You have just graduated from the BTEC program of UTAS and one of your favorite...

Transcribed Image Text:

1. You have just graduated from the BTEC program of UTAS and one of your favorite courses was "Entrepreneurship." In fact, you enjoyed it so much you have decided you want to "be your own boss." Your grandfather has given you OMR 130000 to do whatever you wish. He also gives you 10000 in the second year. You have decided that you would like to purchase an old paper factory using all the money and launch a new tissue paper product. The problem is that you have never been one to stay with any project for too long, so you figure that your time frame is 5 years. After 5 years you will go on to something else. The salvage value at the end of the 5th year is OMR 7000. Year 0 1 2 3 4 5 Cash Outflow (OMR) 130000 10000 Cash Inflow (OMR) 20000 30000 60000 80000 20000 It is funded by both debt and equity and currently has a weighted cost of capital (Discount rate) of 8%. Answer the following questions: - A. Calculate the Internal rate of return and net present value for the above project. Critically evaluate the results and decide whether you should invest based on the two methods used for evaluating. Threshold limit for IRR is 14% B. Critically compare the principles of the IRR and net present value methods including their advantages and disadvantages. Relate the answer to the above case (250 words) C. The projects in the above case is independent. Which technique would you prefer out of NPV and IRR if the projects were independent projects and why? (300 words) D. Using the above example, explain why payback period is not a preferred method 2. Explain Nominal and real interest rates in 200 words. Extract the rate of inflation and interest rate for Argentina Turkey Brazil Russia Mexico China South Africa Spain Yemen Sudan Iran You may refer to https://tradingeconomics.com/ Calculate the real interest rate by Fisher method in the any 5 countries given above. 3. Explain sensitivity analysis and how is sensitivity measured. Give examples? (300 words) 1. You have just graduated from the BTEC program of UTAS and one of your favorite courses was "Entrepreneurship." In fact, you enjoyed it so much you have decided you want to "be your own boss." Your grandfather has given you OMR 130000 to do whatever you wish. He also gives you 10000 in the second year. You have decided that you would like to purchase an old paper factory using all the money and launch a new tissue paper product. The problem is that you have never been one to stay with any project for too long, so you figure that your time frame is 5 years. After 5 years you will go on to something else. The salvage value at the end of the 5th year is OMR 7000. Year 0 1 2 3 4 5 Cash Outflow (OMR) 130000 10000 Cash Inflow (OMR) 20000 30000 60000 80000 20000 It is funded by both debt and equity and currently has a weighted cost of capital (Discount rate) of 8%. Answer the following questions: - A. Calculate the Internal rate of return and net present value for the above project. Critically evaluate the results and decide whether you should invest based on the two methods used for evaluating. Threshold limit for IRR is 14% B. Critically compare the principles of the IRR and net present value methods including their advantages and disadvantages. Relate the answer to the above case (250 words) C. The projects in the above case is independent. Which technique would you prefer out of NPV and IRR if the projects were independent projects and why? (300 words) D. Using the above example, explain why payback period is not a preferred method 2. Explain Nominal and real interest rates in 200 words. Extract the rate of inflation and interest rate for Argentina Turkey Brazil Russia Mexico China South Africa Spain Yemen Sudan Iran You may refer to https://tradingeconomics.com/ Calculate the real interest rate by Fisher method in the any 5 countries given above. 3. Explain sensitivity analysis and how is sensitivity measured. Give examples? (300 words)

Answer rating: 100% (QA)

STEP 1 STEP 2 STEP 3 Cashflow of year 0 13000... View the full answer