Assignment Description 1

This assignment requires you to answer a series of questions. Q6-1 and Q6-2. Answer all questions, perform all calculations and submit in one Excel Spreadsheet.

Assignment Requirement 1

Q6-1

The Hetman Group Inc. has identified the following two mutually exclusive projects:

Year	Cash flow L	Cash flow S
0	-10,000	-10,000
1	200	5,000
2	500	6,000
3	8,200	500
4	4,800	500

1. What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accepts? Is this decision necessarily correct?
2. If the required return is 9%, what is the NPV for each of these projects? Which project will you choose if you apply the NPV decision rule?

Q6-2

CONGRATULATIONS! Due to your outstanding work on the memo outlining bond features, you have just been promoted to Finance Manager, and your department is responsible for funding all capital budget projects. Your new boss has asked you to determine which of the following methods will be used in the process. After summarizing each method, select and discuss the method you recommend from the following list (and why you selected that particular method):

• Net Present Value (NPV)
• Payback Period
• Internal Rate of Return (IRR)
• Profitability Index (PI)