EXERCISE: Financial Models. ACC4100This exercise is worth 5% of your final mark.IntroductionYou are asked to join the Project Selection Committee to assess projects being considered forimplementation by the organization. The only criteria currently used for selection is that a project musthave a payback period of 2 years or less. Due to financial constraints the Committee normally selectsonly one project. This is a new process in the organization so any additional input or advice will beappreciated.Your Company:Revenue $100MExpenses $50MSG&A $22MEarnings $28MShares outstanding 14,000,000EPSShare price $18.00InstructionsThere are four parts to this exercise. (Total = 10 pts.)1) Below are the 5 projects . You need to calculate the payback period using NPV for cash flows. (5pts)2) Make your project selection(s) decision and justify your answer. Explain the advantages anddisadvantages of each project. (1pt.)3) Assess the project impact on the company's financial data. (2 pts.)4) What recommendations do you have, if any to improve the Project Selection process? (2 pts.)The ProjectsAll amounts are Canadian dollars and exchange rates are considered to be stable.Project A:Project A is an investment in Mexico where inflation is running at 6% and expected to do so for the next5 years. It requires a $5,000,000 investment and the return is as follows:Year 1 $2,500,000Year 2 $2,936,173Year 3 $3,100,200Year 4 $2,100,200Note that with large values you should use a discount factor to at least 5 decimal places.Project BProject B is an investment of $10M in a financial project in Switzerland. As you know this country isknown for the banking industry and they maintain a tight control over inflation which is considered to bezero for the duration of this project. The cash flow return is expected to be at the rate of $3,200,000 peryear for four years.Project CThis is a project that requires a significant amount of cash and will require an investment of $25M. Theproject is risky so in addition to the 5% inflation rate there is a required return rate of 10% tocompensate for the risk. The cash flow return is as follows:Year 1 $14,500,000Year 2 $16,387,500Year 3 $ 250,000Year 4 $ 210,000Note that with large values such as these you should use a discount factor to 8 decimal places.Project DProject D is an investment in New Zealand where you can assume there is no inflation. This is a $1Minvestment and hedging is in place in the event of any exchange rate fluctuation. The financial returnsare as follows:Year 1 $1,000,000Year 2 $ 500,000Year 3 $ 250,000Year 4 $ 0Project EProject E is a two year project in Syria. The investment is $2M and there is labour set up required byabout one dozen company employees who need to travel from Ottawa to the Middle East for twoweeks. Inflation is 25%. The financial returns are as follows:Year 1 $1,200,000Year 2 $1,200,000Answers (Use as much space as required)1) Payback Period. Complete the table below by inserting the payback period in each column.Project A Project B Project C Project D Project EPayback Period2) Make a decision about which project you will select for implementation. Explain why you selectedthe project. Briefly discuss the advantages and disadvantages of each project.3) For the project that you selected what is the expected result on the Company's financial data whenthe project is completed?4) Do you have any recommendations to improve the Project Selection process?

EXERCISE: Financial Models. ACC4100 This exercise is worth 5% of your final mark. Introduction You are asked to join the Project Selection Committee to assess projects being considered for implementation by the organization. The only criteria currently used for selection is that a project must have a payback period of 2 years or less. Due to financial constraints the Committee normally selects only one project. This is a new process in the organization so any additional input or advice will be appreciated. Your Company: Revenue Expenses SG&A Earnings Shares outstanding EPS Share price $100M $50M $22M $28M 14,000,000 $18.00 Instructions There are four parts to this exercise. (Total = 10 pts.) 1) Below are the 5 projects . You need to calculate the payback period using NPV for cash flows. (5pts) 2) Make your project selection(s) decision and justify your answer. Explain the advantages and disadvantages of each project. (1pt.) 3) Assess the project impact on the company's financial data. (2 pts.) 4) What recommendations do you have, if any to improve the Project Selection process? (2 pts.) The Projects All amounts are Canadian dollars and exchange rates are considered to be stable. Project A: Project A is an investment in Mexico where inflation is running at 6% and expected to do so for the next 5 years. It requires a $5,000,000 investment and the return is as follows: Year 1 $2,500,000 Year 2 Year 3 Year 4 $2,936,173 $3,100,200 $2,100,200 Note that with large values you should use a discount factor to at least 5 decimal places. Project B Project B is an investment of $10M in a financial project in Switzerland. As you know this country is known for the banking industry and they maintain a tight control over inflation which is considered to be zero for the duration of this project. The cash flow return is expected to be at the rate of $3,200,000 per year for four years. Project C This is a project that requires a significant amount of cash and will require an investment of $25M. The project is risky so in addition to the 5% inflation rate there is a required return rate of 10% to compensate for the risk. The cash flow return is as follows: Year 1 Year 2 Year 3 Year 4 $14,500,000 $16,387,500 $ 250,000 $ 210,000 Note that with large values such as these you should use a discount factor to 8 decimal places. Project D Project D is an investment in New Zealand where you can assume there is no inflation. This is a $1M investment and hedging is in place in the event of any exchange rate fluctuation. The financial returns are as follows: Year 1 Year 2 Year 3 Year 4 $1,000,000 $ 500,000 $ 250,000 $ 0 Project E Project E is a two year project in Syria. The investment is $2M and there is labour set up required by about one dozen company employees who need to travel from Ottawa to the Middle East for two weeks. Inflation is 25%. The financial returns are as follows: Year 1 Year 2 $1,200,000 $1,200,000 Answers (Use as much space as required) 1) Payback Period. Complete the table below by inserting the payback period in each column. Project A Project B Project C Project D Project E Payback Period 2) Make a decision about which project you will select for implementation. Explain why you selected the project. Briefly discuss the advantages and disadvantages of each project. 3) For the project that you selected what is the expected result on the Company's financial data when the project is completed? 4) Do you have any recommendations to improve the Project Selection process