I am hoping someone can review my answers from my Finance assignment and let me know their thoughts? Any recommendations to change my answers? Would you say this is solid, please explain. Questions/Answers are on the bottom.

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FIN 390 Assignment - Fall 2020

Capital Budgeting Mini Case

Instructions:The assignment is based on the mini case below. The instructions relating to the assignment are at the end of the case.

Rosa Lee and Scott Bradshaw are facing an important decision. After having discussed different financial scenarios into the wee hours of the morning, the two computer engineers felt it was time to finalize their cash flow projections and move to the next stage - decide which of two possible projects they should undertake.

Both had a bachelor degree in engineering and had put in several years as maintenance engineers in a large chip manufacturing company. About six months ago, they were able to exercise their first stock options. That was when they decided to quit their safe, steady job and pursue their dreams of starting a venture of their own. In their spare time, almost as a hobby, they had been collaborating on some research into a new chip that could speed up certain specialized tasks by as much as 25%. At this point, the design of the chip was complete. While further experimentation might improve the performance of their design, any delay in entering the market now may prove to be costly, as one of the established players might introduce a similar product of their own. The duo knew that now was the time to act if at all.

They estimated that they would need to invest $5,000,000 on plant, equipment and working capital. As for future cash flows, they felt that the right strategy at least for the first year would be to sell their product at dirt-cheap prices in order to induce customer acceptance. Then, once the product had established a name for itself, the price could be raised. By the end of the fifth year, their product in its current form was likely to be obsolete. However, the innovative approach that they had devised and patented could be sold to a larger chip manufacturer for a decent sum. Accordingly, the two budding entrepreneurs estimated the cash flows for this project (call it Project A) as follows:

Payback period Discounted Payback Net Present Value (NPV) Internal Rate of Return (IRR) Profitability Index (Pl) Modied Internal rate of Return (MIRR) Project A 3.68 yea rs 4.67 yea rs $703,531 19.82% 1.1256 18.78% Project B 1.77 years 2.78 years $681,180 23.85% 1.1261 18.79% Project B 1 8: project A - 2 Project B 1 8: project A 2 Project A -2 8: project B 1 Project B 2 8: project A 1 Project B 2 8: project A 1 Project B 1 8: project A 2 Metrics Project A Project B Payback period (in years) 3.57 1.79 Discounted payback period (in years) 4.63 2.82 Net Present Value (NPV) $565,862 $525,752 Internal Rate of Return (IRR) 18.40% 22.36% Profitability Index 1.1132 1.1143 Modified Internal Rate of Return (MIRR) 17.49% 17.52%