Question 3

A local college is considering adding a new tourism management program to its curriculum and projects the following cash flows for the next 5 years: (all figures in 000s)

	Now	Year 1	Year 2	Year 3	Year 4	Year 5
Cash Inflows	0	50	60	65	80	100
Cash Outflows	(105)	(45)	(40)	(35)	(30)	(30)

1. Calculate the Net Cash Flows for each year. Enter your results in the bottom grey row of the table below:

	Now	Year 1	Year 2	Year 3	Year 4	Year 5
Cash Inflows	0	50	60	65	80	100
Cash Outflows	(105)	(45)	(40)	(35)	(30)	(30)
Net Cash Flows

2. Find the Net Present Value (NPV) of investing in the Tourism Management program assuming a discount rate of 8%. Show the exact Excel formula (along with the appropriate post-formula adjustment) you would use.

Excel Formula (symbols only)	Excel Formula (numbers only)	Answer (number only)

3. Based on NPV results calculated above, do you invest in the new Tourism Management program? Why or why not?

4. What is the Internal Rate of Return (IRR) of investing in the new Tourism Management program?

Excel Formula (symbols only)	Excel Formula (numbers only)	Answer (number only)

5. Using your IRR result above, circle ACCEPTED or REJECTED for each scenario

1. If the colleges hurdle rate is 12%, this project is ACCEPTED / REJECTED.

2. If the colleges hurdle rate is 16%, this project is ACCEPTED / REJECTED.

6. What is the payback period in years for investing in the new Tourism Management program?

7. Briefly explain why NPV and IRR are superior to the Payback Period measure of a projects financial attractiveness.

8. Suppose that the NPV and IRR results conflict (i.e. one metric says invest, the other says dont invest). Describe two possible ways you could resolve this conflict to make the invest/dont invest decision.