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I ONLY NEED # 2 answered but information from # 1 is required for # 2 : 1 . Bulldog Memorabilia, a small screen printing
I ONLY NEED # answered but information from # is required for #:
Bulldog Memorabilia, a small screen printing firm, is considering investing in new technology that allows customers to design their own products online, then they are automatically printed and shipped with only minimal labor costs. The firm has projected the following cash flows
Time Time Time Time Time Time
The firm anticipates selling the equipment for its salvage value at time and estimates the project cost of capital to be The firm estimates the IRR on the project to be
a Calculate the Net Present Value of the project points
NPV
NPV
b Calculate the Payback Period and Discounted Payback period points
Payback period year before payback unrecovered cashcash flow
Payback period years
Discounted payback period year before paybackunrecovered discount costcash flow
Discounted payback period years
c Calculate the Profitability Index for the project points
Profitability indexNPVInvestmentInvestment
Profitability index
d Will the NPV and IRR always provide the same accept reject decision is it possible for you to accept a project using NPV and reject it using IRR Explain in detail show why they will always agree or provide an example where they dont points
When considering a project by itself, the NPV and IRR will generally always lead to the same acceptreject decision assuming conventional cash flow, but I dont believe that is the case with this project. If you are comparing a project to another project, on the other hand, trying to decide which to pursue, the NPV and IRR will not always agree, and you should utilize NPV There are limitations to IRR in cases of unconventional cash flows, IRR not taking into account size and scale of the investment, and IRR assuming reinvestment at the same rate. NPV will provide a clear indication of if a project will or will not increase the firms overall value, taking size and scale of investment into consideration. Because of this, and the limitations of IRR, sometimes the NPV and IRR will not provide the same acceptreject decision when comparing projects. In the case of this project, the projects IRR would suggest that the project is acceptable since it is higher than the cost of capital, however, the NPV of this project points towards a decrease in overall value of the firm, hence showing a disagreement in the acceptreject decision between NPV and IRR.
e If you were comparing this project to another project and could only accept one of them, would it matter if you ranked the projects based upon their NPV or IRR? Explain in detail. points
I kind of touched on this in the previous question, but yes it would matter. When comparing this project to another project, you should prioritize NPV The NPV will provide you with a more absolute value of the projects for the firm, compared to IRR. Its not that the IRR is not valuable to consider when comparing projects, just that the NPV is the better wholescope option to consider that doesnt carry the same limitations as IRR that I previously mentioned.
The CFO of Bulldog is not sure that she is accurate in her estimates of the future cash flows and decides to conduct a scenario analysis.
a She has asked you to recalculate the NPV assuming that each future cash flow and the salvage value are higher than her initial estimate or lower. How is the estimate of NPV changed in each case caseall future cash flows and the salvage value increase by case all cash future flows and the salvage value decrease by Assume that there is a probability of the increased cash flows, a probability of the decreased cash flows and a probability of the original estimate in problem What is the expected NPV of the project? points
b Does the range of outcomes and expected NPV change how you would view the riskiness project and the likelihood that you would accept the project? Explain in detail and relate your answer to the issues associated with using NPV to evaluate a project how accurate are the projected future cash flows? What types of assumptions must be made to forecast the future cash flows used in the analysis? Does the basic NPV or the expected NPV provide better information upon which to base a decision? points
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