Calculate the Cash Flows for the 3 different options.

What is the NPV of the 3 different options?

What is the IRR of the "modernization" option?

What is the Payback Period (simple) of the "modernization" option?

What is your recommendation? What should your client do? Why?

What is your recommendation if you consider that when you sell the company, you receive 100% of the payment immediately and that you will operate the company for 18 years before retiring instead of 15 (all other data and assumptions remain the same)

You inherited a small company, you have 3 options: * Sell the company * Continue operating the company without investing in it * Continue operating the company making a one-time investment to modernize it Assume that at any given point in the future, the company can be sold for 10 times its previous year's profit. Whenever you sell the company, you receive 30% as down payment and 70% two years later. As soon as the down payment is made, the profits of the company belong to the new owners. If you decide to continue owning the business, you will operate it for 15 years and then sell it. The benefits of the modernization will be seen 1 year after the modernization is made. Because you cannot be sure about the future, you want to consider different probabilities for every piece of uncertain information. Consider the following information: Last year's profits 1,200,000 Current selling price of the company 12,000,000 Your MARR 15% per year Expected annual profit (current year) 1,224,000 1,236,000 1,248,000 Probability 20% 60% 20% Annual increase in profit 2.0% 3.0% 4.0% Probability 30% 50% 20% Required investment in modernization 1,800,000 2,550,000 3,000,000 Probability 20% 60% 20% Additional annual increase in profitability 1.5% 3.0% 4.5% due to modernization Probability 10% 50% 40% Build an Excel spredsheet to answer the items in the following page: Note: The spreadsheet must be built using Excel's functions, all data and calculations must be linked to the original data. It needs to be built in a way that if one of the factors changes, everything is updated automatically. Make sure you highlight the answers in the excel spreadsheet and you write them in Canvas. State any assumptions you make You inherited a small company, you have 3 options: * Sell the company * Continue operating the company without investing in it * Continue operating the company making a one-time investment to modernize it Assume that at any given point in the future, the company can be sold for 10 times its previous year's profit. Whenever you sell the company, you receive 30% as down payment and 70% two years later. As soon as the down payment is made, the profits of the company belong to the new owners. If you decide to continue owning the business, you will operate it for 15 years and then sell it. The benefits of the modernization will be seen 1 year after the modernization is made. Because you cannot be sure about the future, you want to consider different probabilities for every piece of uncertain information. Consider the following information: Last year's profits 1,200,000 Current selling price of the company 12,000,000 Your MARR 15% per year Expected annual profit (current year) 1,224,000 1,236,000 1,248,000 Probability 20% 60% 20% Annual increase in profit 2.0% 3.0% 4.0% Probability 30% 50% 20% Required investment in modernization 1,800,000 2,550,000 3,000,000 Probability 20% 60% 20% Additional annual increase in profitability 1.5% 3.0% 4.5% due to modernization Probability 10% 50% 40% Build an Excel spredsheet to answer the items in the following page: Note: The spreadsheet must be built using Excel's functions, all data and calculations must be linked to the original data. It needs to be built in a way that if one of the factors changes, everything is updated automatically. Make sure you highlight the answers in the excel spreadsheet and you write them in Canvas. State any assumptions you make