1. Calculate the Payback Period of each project. Explain what argument Tim should make to show...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1. Calculate the Payback Period of each project. Explain what argument Tim should make to show that the Payback Period is not appropriate in this case. 2. Calculate the Discounted Payback Period (DPP) using 10% as the discount rate. Should Tim ask the Board to use DPP as the deciding factor? Explain. 3. Calculate the two projects' IRR. How should Tim convince the Board that the IRR measure could be misleading? 4. Construct the NPV profiles for the two projects and explain the relevance of the crossover point. How should Tim convince the Board that the NPV method is the way to go? 5. Explain how Tim can show that the Modified Internal Rate of Return is the more realistic measure to use in the case of mutually exclusive projects. 6. Calculate the Profitability Index for each proposal. Can this measure help to solve the dilemma? Explain. 7. In looking over the documentation prepared by the two project teams, it appears to you that the synthetic resin team has been somewhat more conservative in its revenue projections than the epoxy resin team. What impact might this have on your analysis? 8. In looking over the documentation prepared by the two proje teams, it appears to you that the synthetic resin technology would require extensive development before it could be implemented whereas the epoxy resin technology is available "off-the-shelf." What impact might this have on your analysis? Net Income Depreciation Net Cash Flow Net Income Depreciation Net Cash Flow Year 0 -$1,000,000 Year 0 -$800,000 Table 1: Synthetic Resin Year 1 $150,000 $200,000 $350,000 Year 2 $200,000 $200,000 $400,000 Year 1 $440,000 $160,000 $600,000 Table 2: Epoxy Resin Year 2 $240,000 $160,000 Year 3 $300,000 $200,000 $500,000 $400,000 Year 3 $140,000 $160,000 $300,000 Year 4 $450,000 $200,000 $650,000 Year 4 $40,000 $160,000 $200,000 Year 5 $500,000 $200,000 $700,000 Year 5 $40,000 $160,000 $200,000 1. Calculate the Payback Period of each project. Explain what argument Tim should make to show that the Payback Period is not appropriate in this case. 2. Calculate the Discounted Payback Period (DPP) using 10% as the discount rate. Should Tim ask the Board to use DPP as the deciding factor? Explain. 3. Calculate the two projects' IRR. How should Tim convince the Board that the IRR measure could be misleading? 4. Construct the NPV profiles for the two projects and explain the relevance of the crossover point. How should Tim convince the Board that the NPV method is the way to go? 5. Explain how Tim can show that the Modified Internal Rate of Return is the more realistic measure to use in the case of mutually exclusive projects. 6. Calculate the Profitability Index for each proposal. Can this measure help to solve the dilemma? Explain. 7. In looking over the documentation prepared by the two project teams, it appears to you that the synthetic resin team has been somewhat more conservative in its revenue projections than the epoxy resin team. What impact might this have on your analysis? 8. In looking over the documentation prepared by the two proje teams, it appears to you that the synthetic resin technology would require extensive development before it could be implemented whereas the epoxy resin technology is available "off-the-shelf." What impact might this have on your analysis? Net Income Depreciation Net Cash Flow Net Income Depreciation Net Cash Flow Year 0 -$1,000,000 Year 0 -$800,000 Table 1: Synthetic Resin Year 1 $150,000 $200,000 $350,000 Year 2 $200,000 $200,000 $400,000 Year 1 $440,000 $160,000 $600,000 Table 2: Epoxy Resin Year 2 $240,000 $160,000 Year 3 $300,000 $200,000 $500,000 $400,000 Year 3 $140,000 $160,000 $300,000 Year 4 $450,000 $200,000 $650,000 Year 4 $40,000 $160,000 $200,000 Year 5 $500,000 $200,000 $700,000 Year 5 $40,000 $160,000 $200,000
Expert Answer:
Answer rating: 100% (QA)
Answer Lets address each question one by one 1 Payback Period Project with Synthetic Resin Year ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
Students also viewed these accounting questions
-
The Day-Pro Chemical Corporation, established in 1995, has managed to earn a consistently high rate of return on its investment. The secret of its success has been the strategic and timely...
-
On June 1, 2018, Brady purchased an option to buy 1,000 shares of General, Inc. at $40 per share. He purchased the option for $3,000. It was to remain in effect for five months. The market...
-
In view of the information provided below provide suggestions for the efficient management of trade debtors. INFORMATION MANAGEMENT OF TRADE DEBTORS Debtor management is central to the effective cash...
-
You are given the following information about two stocks: (a) Calculate the mean and standard deviation for each stock. (b) Compare the mean, standard deviation, and coefficient of variation of each...
-
In a particular photoelectric experiment, a stopping potential of 2.10V is measured when ultraviolet light of wavelength 290nm is incident on the metal. Using the same setup, what will the new...
-
If the government bars foreign lenders from loaning money to its citizens, how does the capital market equilibrium change?
-
Bargen Co. entered into the following transactions involving short-term liabilities in 2004 and 2005. Required 1. Determine the maturity date for each of the three notes described. 2. Determine the...
-
The Gibson & Zorich Bakery bakes breads and muffins for wholesale to restaurants. The company uses process costing to account for the cost of the breads and muffins that it produces. Raw material...
-
QUESTION THREE: (25 marks) Dana and Dalal have a partnership agreement which includes the following provisions regarding sharing net income and net loss: 1. Since Dana will work only part time in the...
-
Bonds 1. Municipal Bonds - Municipal bonds are haircut per Exhibit 1 based on both their time to maturity and scheduled maturity at date of issue. 2. Corporate Bonds - Corporate bonds are haircut...
-
Events A and B are mutally exclusive. Find the indicated Probability P(A) = 0.28 P(B) = 0.05 P(A or B) =
-
In the light of Gibbs theorem, discuss the importance of the ideal gas mixture model.
-
Explain the 'ideal solution model' with the help of the Lewis-Randall rule.
-
The latent heat of vaporization of Freon- 11 at \(23.6^{\circ} \mathrm{C}\) and 1 atm is \(5960 \mathrm{~g}\)-cal \(/ \mathrm{g}-\mathrm{mol}\). Calculate \(\Delta U\) and \(\Delta H\) of this...
-
State Raoult's law. Show that it is a simplified form of the Lewis-Randall rule.
-
Show that \[ M^{\mathrm{E}}=M^{\mathrm{R}}-\sum x_{i} M_{i}^{\mathrm{R}} \]
-
You are considering the purchase of a $1,000 par value bond with a coupon rate of 6% (with interest paid semiannually) that matures in 12 years. If the bond is priced to yield 8%, what is the bond's...
-
Read the Forecasting Supply Chain Demand Starbucks Corporation case in your text Operations and Supply Chain Management on pages 484-485, then address the four questions associated with the...
-
Mo's Delicious Burgers Inc. sells food to university cafeterias for $15 a box. The fixed costs of this operation are $80,000, while the variable cost per box is $10. a. What is the break-even point...
-
The Resolute Bay Shipping News is selling for $65.00 the day before the stock goes ex-dividend. The annual dividend yield is 5.5 percent, and the dividends are paid quarterly. Based solely on the...
-
Marty Not is going to borrow $8,000 for 120 days and pay $215 in interest. What is the annual rate of interest if the loan is discounted?
-
What is the Euro Areas total for Groups A and B? Use the following balance of payments data for the Euro Area from the IMF to answer this problem. Assumptions (billion US$) 2000 2001 2002 2003 2004...
-
What is the Euro Areas total for Groups A through C? Use the following balance of payments data for the Euro Area from the IMF to answer this problem. Assumptions (billion US$) 2000 2001 2002 2003...
-
What is the Euro Areas total for Groups A through D? Use the following balance of payments data for the Euro Area from the IMF to answer this problem. Assumptions (billion US$) 2000 2001 2002 2003...
Study smarter with the SolutionInn App