Question
PLEASE Help! this is my last assignment for finance to obtain my bachelors and the only one I have been having so much trouble with.
PLEASE Help! this is my last assignment for finance to obtain my bachelors and the only one I have been having so much trouble with. I would REALLY appreciate it! I have been working on this project for the past month and cant seem to figure it out.
Proposal A: The auto airbags production division submitted a proposal for a new airbag model that would cost $2,355,600 to develop. The anticipated revenue stream for the next 10 years was $400,000 per year.
Proposal B: The aerospace division proposed the development of new radar surveillance equipment. The anticipated cost was $2,441,700. The anticipated revenue stream for this new project was $450,000 per year for the next 10 years.
Proposal C: Proposal C was a second proposal from the auto airbags division. It called for special equipment to be used in the disposal of environmentally harmful waste material created in the manufacturing process. The equipment cost $145,680 and was expected to provide cost savings of $15,000 per year for 15 years.
1. Compute the internal rate of return and the net present value for each of these four proposals.
2. Based strictly on the calculations, which proposals should be accepted or rejected. Use the appropriate divisional discount rate. The net present value provides the answer directly while the internal rate of return must be compared to the discount rate (which is the same as the required rate of return).
3. What subjective elements might override or influence any of the answers provided to Question 2.
4. Assume the head of the aerospace division asked for a second review on the new radar surveillance equipment (Proposal B). He maintains that the numbers presented in Proposal B are correct, but he wants initial research on this project. (It's not included in the $2,441,700). He suggests that this might influence your decision. What should be your response?
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