Environ Ltd requests you to evaluate two new capital budgeting proposals and provide your recommendations You are required to submit a report by responding to the underlisted questions In your report, state any assumptions made and clearly show all your steps in the calculations undertaken towards reaching your conclusions Instructions are as follows Provide an evaluation of two proposed projects landfill and borehole The initial outlays are $100,000 and $250, 000, respectively for the landfill and borehole Environ Ltd has set the required rate of return for both projects to 15 The expected after tax cash flows from each project are as presented in the Table 1 below Question 2 35 marks Which project should Environ Ltd accept Use the net present value (NPV) criterion to evaluate both projects Explain in detail, including all calculations Also, clearly state all your assumptions (15 marks) Determine the IRR for each project According to the IRR, which project should be accepted Explain in detail, including all calculations (10 marks) Would your conclusions in parts (a) and (b) change if the required rate of return increased to 14 Explain in detail, including all calculations 10 marks Question 3 20 marks Environ Ltd has revised its estimates of expected after tax cash flows as shown in Table 2 The initial outlays are $800,000 for the landfill and $250, 000 for the borehole Environ Ltd maintains the required rate of return at 12 for both projects Based on the net present value (NPV) criterion, which project should Environ Ltd accept Explain in detail, including all calculations Also, clearly state all your assumptions (10 marks) Based on the internal rate of return (IRR) criterion, which project should Environ Ltd accept Explain in detail, with the graph of IRR and all working steps Also, clearly state all your assumptions (10 marks) Question 4 25 marks Some financial mangers prefer capital budgeting models such as internal rate of return (IRR) or non discounted payback models over the net present value (NPV) the model, which is preferred by academic financial analysts Why Briefly discuss Word Limit 500 words Table 1 Cash flows A Landfill Borehole Inflow year 1 $160,000 $300,000 Inflow year 2 $160,000 $300,000 Inflow year 3 $160,000 $300,000 Inflow year 4 $160,000 Inflow year 5 160,000 Inflow year 6 160,000 Table 2 Cash flows B Landfill Borehole Inflow year 1 $450,000 $300,000 Inflow year 2 $450,000 $300,000 Inflow year 3 $450,000 $300,000 Inflow year 4 $450,000 Inflow year 5 $450,000 Inflow year 6 $1 500,000

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 17, 2024

Environ Ltd requests you to evaluate two new capital budgeting proposals and provide your recommendations. You are required to submit a report by responding to

Environ Ltd requests you to evaluate two new capital budgeting proposals and provide your recommendations. You are required to submit a report by responding to the underlisted questions. In your report, state any assumptions made and clearly show all your steps in the calculations undertaken towards reaching your conclusions. Instructions are as follows: Provide an evaluation of two proposed projects: landfill and borehole. The initial outlays are $100,000 and $250, 000, respectively for the landfill and borehole. Environ Ltd has set the required rate of return for both projects to 15%. The expected after-tax cash flows from each project are as presented in the Table 1 below.

image text in transcribed

Question 2 [35 marks]

Which project should Environ Ltd accept? Use the net present value (NPV) criterion to evaluate both projects. Explain in detail, including all calculations. Also, clearly state all your assumptions. (15 marks)
Determine the IRR for each project. According to the IRR, which project should be accepted? Explain in detail, including all calculations. (10 marks)
Would your conclusions in parts (a) and (b) change if the required rate of return increased to 14%? Explain in detail, including all calculations. [10 marks]
Question 3 [20 marks]

Environ Ltd has revised its estimates of expected after-tax cash flows as shown in Table 2. The initial outlays are $800,000 for the landfill and $250, 000 for the borehole. Environ Ltd maintains the required rate of return at 12% for both projects.
Based on the net present value (NPV) criterion, which project should Environ Ltd accept? Explain in detail, including all calculations. Also, clearly state all your assumptions. (10 marks)
Based on the internal rate of return (IRR) criterion, which project should Environ Ltd accept? Explain in detail, with the graph of IRR and all working steps. Also, clearly state all your assumptions. (10 marks)
Question 4 [25 marks]
Some financial mangers prefer capital budgeting models such as internal rate of return (IRR) or non- discounted payback models over the net present value (NPV) the model, which is preferred by academic financial analysts. Why? Briefly discuss. [Word Limit: 500 words]

Table 1: Cash flows A Landfill Borehole Inflow year 1 $160,000 $300,000 Inflow year 2 $160,000 $300,000 Inflow year 3 $160,000 $300,000 Inflow year 4 $160,000 Inflow year 5 160,000 Inflow year 6 160,000 Table 2: Cash flows B Landfill Borehole Inflow year 1 $450,000 $300,000 Inflow year 2 $450,000 $300,000 Inflow year 3 $450,000 $300,000 Inflow year 4 $450,000 Inflow year 5 $450,000 Inflow year 6 -$1 500,000