One of the most important roles that just about everyone in a company can be involved is capital budgeting. What projects should we go ahead with or not go ahead with? Should we invest in a project which will improve our IT systems, improve our HR systems, or perhaps start a new division of the company? Even if you are not in a finance role, it is essential that you are able to speak the same language so that you can help to determine what is appropriate as well as champion your own projects effectively. The money for these projects has to come from somewhere and is related to the capital of the company. How much of the company should be financed by ongoing cash flow versus raising capital from equity holders or borrowing? There are 100 marks available for this assignment. See the questions below for mark distribution. Make sure to clearly explain your work so that your Open Learning Faculty Member can give feedback. You may get partial marks, even if your final answer is incorrect. Respond to the following: Parkallen Inc. has identified the following two mutually exclusive projects: 3 Year Cash Flow (A) -$29,000 14,400 2 12,300 9,200 4 5,100 a. What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct? (10 marks) b. If the required return is 11%, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule? (10 marks) c. Over what range of discount rates would the company choose Project A? What range would cause the company to choose Project B? At what discount rate would the company be indifferent between these two projects? Explain. (10 marks) d. What is the payback period for each of these projects? Which project will the company choose if it applies the payback period decision rule? (5 marks) e. If the required return is 11%, what is the profitability index for each of these projects? Which project will the company choose if it applies the profitability index decision rule? (5 marks) One of the most important roles that just about everyone in a company can be involved is capital budgeting. What projects should we go ahead with or not go ahead with? Should we invest in a project which will improve our IT systems, improve our HR systems, or perhaps start a new division of the company? Even if you are not in a finance role, it is essential that you are able to speak the same language so that you can help to determine what is appropriate as well as champion your own projects effectively. The money for these projects has to come from somewhere and is related to the capital of the company. How much of the company should be financed by ongoing cash flow versus raising capital from equity holders or borrowing? There are 100 marks available for this assignment. See the questions below for mark distribution. Make sure to clearly explain your work so that your Open Learning Faculty Member can give feedback. You may get partial marks, even if your final answer is incorrect. Respond to the following: Parkallen Inc. has identified the following two mutually exclusive projects: 3 Year Cash Flow (A) -$29,000 14,400 2 12,300 9,200 4 5,100 a. What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct? (10 marks) b. If the required return is 11%, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule? (10 marks) c. Over what range of discount rates would the company choose Project A? What range would cause the company to choose Project B? At what discount rate would the company be indifferent between these two projects? Explain. (10 marks) d. What is the payback period for each of these projects? Which project will the company choose if it applies the payback period decision rule? (5 marks) e. If the required return is 11%, what is the profitability index for each of these projects? Which project will the company choose if it applies the profitability index decision rule
