Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Domestic Robots R Us (DRRU), a subsidiary of Al Electronics Inc, are considering three new robots for their offering of Al driven domestic robots. Unfortunately,
Domestic Robots R Us (DRRU), a subsidiary of Al Electronics Inc, are considering three new robots for their offering of Al driven domestic robots. Unfortunately, DRRU are subject to tight capital constraints, preventing them from putting all three robots into production should all three robots prove to create shareholder value. Indeed, the maximum investment DRRU can make this year is $55 million. DRRU's cost of capital is 12% and the management are confident that each of the three robots or projects has the same risk as DRRU's existing projects. The predicted cash flows (all in million \$) for all three robots can be found in the Excel sheet given below. 1. Observing the above annual cash flows, what do you notice? Based on what you have learnt so far, what should immediately be a matter of concern? Check whether your concern is justified. 2. While keeping in mind what you concluded in the previous step, assess all three projects by computing the following: 3. NPV, 4. IRR, 5. Payback period, and 6. Profitability index 7. If there were no capital constraints, what should DRRU do? 8. Given the capital constraints, what do you advise DRRU to do? 9. Use the excel template to calculate the values and respond to the given questions, and submit your file for grading. It is important that if you use another tool such as Numbers or Google Sheets, you save your file as an Excel sheet before submitting. You will be graded based on the accuracy of the calculations and the quality of your explanations
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started