Perform the analysis described below. in an excel file (or pdf) with your answers. Don't forget about questions 2 and 3 (idk, but several students seem to forget to include them every year). You are a finance director at a consumer goods company. You oversee 10 senior managers who develop and execute projects. You get to decide which projects the company will accept. Your company policy is to use a different discount rate for projects based on their level of risk. If a project expands on current operations, it is considered "low risk" and has a required return of 7%. Projects that involve entering new markets or developing new products are considered "high risk" and have a required return of 12%. 1. For each project calculate the net present value (NPV), internal rate of return (IRR), and profitability index (PI). (Note, I've solved #8 as an example at the end of this) a. For each project indicate whether or not you should accept it. b. Find the payback period for a few projects until you are confident in your ability to calculate the payback period. 2. Suppose project's 3 and 4 (Calvin and Darius) are mutually exclusive: if you accept one project then you can't accept the other. Which project should you accept, and why? a. How about project's 2 and 7 (Bailey and Gavin) if they were mutually exclusive? One has a higher NPV, but the other has a higher IRR? Why should you accept the project with the higher NPV even though it has a lower rate of return? 3. Assume that none of the projects are mutually exclusive (i.e., you can do any combination of them) but you are limited to $175,000 in new project investment funds. Which projects should you pick to maximize the firm's value (i.e., which combination of projects gives you the highest NPV while spending $175,000 or less)? Low risk projects (required return: 7%) 1. Alice proposes a marketing campaign that features local restaurant owners using your products. The campaign would cost $20,000 in year 0. Alice expects the increased sales to generate $3,000 of profit each year for the next 8 years. 2. Bailey proposes a marketing campaign centered around the company's mixed drinks. The campaign will require an initial investment of $31,300. It is expected to generate $3,000 in year 1, $6,000 in year 2, $9,000 in year 3, $12,000 in year 4, and $15,000 in year 5. 3. Calvin's idea involves creating bundles of the company's existing sporting goods that will encourage kids to make up new games with the equipment from multiple different sports. The project will require $24,680 in up front investment but is expected to pay $4,000, $8,000, $16,000, $8,000, and $4,000 over the next five years, respectively. 4. Darius wants the company to important and sell fine rugs to complement their existing housewares. This will project will need an initial investment of $85,000 and will not produce any profits in the first year. However, Darius expects profits of 26,000 32,000 in year 3, 38,000 in year 4, and 44,000 in year 5. in year 2, 201 22- MONSTE 2002- - WM-WW
file (or pdf) with your answers. Don't forget about questions 2 and 3 (idk, but several students seem to forget to include them every year). You are a finance director at a consumer goods company. You oversee 10 senior managers who develop and execute projects. You get to decide which projects the company will accept. Your company policy is to use a different discount rate for projects based on their level of risk. If a project expands on current operations, it is considered "low risk" and has a required return of 7%. Projects that involve entering new markets or developing new products are considered "high risk" and have a required retum of 12%. 1. For each project calculate the net present value (NPV), internal rate of return (IRR), and profitability index (PI). (Note, I've solved #8 as an example at the end of this) a. For each project indicate whether or not you should accept it. b. Find the payback period for a few projects until you are confident in your ability to calculate the payback period. 2. Suppose project's 3 and 4 (Calvin and Darius) are mutually exclusive: if you accept one project then you can't accept the other. Which project should you accept, and why? a. How about project's 2 and 7 (Bailey and Gavin) if they were mutually exclusive? One has a higher NPV, but the other has a higher IRR? Why should you accept the project with the higher NPV even though it has a lower rate of return? 3. Assume that none of the projects are mutually exclusive (i.e., you can do any combination of them) but you are limited to $175,000 in new project investment funds. Which projects should you pick to maximize the firm's value (i.e., which combination of projects gives you the highest NPV while spending $175,000 or less)? Low risk prejects (required return: 7% ) 1. Alice proposes a marketing campaign that features local restaurant owners using your products. The campaign would cost $20,000 in year 0 . Alice expects the increased sales to generate $3,000 of profit each year for the next 8 years. 2. Bailey proposes a marketing campaign centered around the company's mixed drinks. The campaign will require an initial investment of $31,300. It is expected to generate $3,000 in year 1,$6,000 in year 2,$9,000 in year 3,$12,000 in year 4 , and $15,000 in year 5. 3. Calvin's idea involves creating bundles of the company's existing sporting goods that will encourage kids to make up new games with the equipment from multiple different sports. The project will require $24,680 in up front investment but is expected to pay $4,000,$8,000,$16,000,$8,000, and $4,000 over the next five years, respectively. 4. Darius wants the company to important and sell fine rugs to complement their existing housewares. This will project will need an initial investment of $85,000 and will not produce any profits in the first year. However, Darius expects profits of 26,000 in year 2, 32,000 in year 3,38,000 in year 4 , and 44,000 in year 5 . file (or pdf) with your answers. Don't forget about questions 2 and 3 (idk, but several students seem to forget to include them every year). You are a finance director at a consumer goods company. You oversee 10 senior managers who develop and execute projects. You get to decide which projects the company will accept. Your company policy is to use a different discount rate for projects based on their level of risk. If a project expands on current operations, it is considered "low risk" and has a required return of 7%. Projects that involve entering new markets or developing new products are considered "high risk" and have a required retum of 12%. 1. For each project calculate the net present value (NPV), internal rate of return (IRR), and profitability index (PI). (Note, I've solved #8 as an example at the end of this) a. For each project indicate whether or not you should accept it. b. Find the payback period for a few projects until you are confident in your ability to calculate the payback period. 2. Suppose project's 3 and 4 (Calvin and Darius) are mutually exclusive: if you accept one project then you can't accept the other. Which project should you accept, and why? a. How about project's 2 and 7 (Bailey and Gavin) if they were mutually exclusive? One has a higher NPV, but the other has a higher IRR? Why should you accept the project with the higher NPV even though it has a lower rate of return? 3. Assume that none of the projects are mutually exclusive (i.e., you can do any combination of them) but you are limited to $175,000 in new project investment funds. Which projects should you pick to maximize the firm's value (i.e., which combination of projects gives you the highest NPV while spending $175,000 or less)? Low risk prejects (required return: 7% ) 1. Alice proposes a marketing campaign that features local restaurant owners using your products. The campaign would cost $20,000 in year 0 . Alice expects the increased sales to generate $3,000 of profit each year for the next 8 years. 2. Bailey proposes a marketing campaign centered around the company's mixed drinks. The campaign will require an initial investment of $31,300. It is expected to generate $3,000 in year 1,$6,000 in year 2,$9,000 in year 3,$12,000 in year 4 , and $15,000 in year 5. 3. Calvin's idea involves creating bundles of the company's existing sporting goods that will encourage kids to make up new games with the equipment from multiple different sports. The project will require $24,680 in up front investment but is expected to pay $4,000,$8,000,$16,000,$8,000, and $4,000 over the next five years, respectively. 4. Darius wants the company to important and sell fine rugs to complement their existing housewares. This will project will need an initial investment of $85,000 and will not produce any profits in the first year. However, Darius expects profits of 26,000 in year 2, 32,000 in year 3,38,000 in year 4 , and 44,000 in year 5
