stContentjsp course id 234228 18icontent id 25888341.1 Kendra ill Compare the results of the three (3) methods by quality of information for decision making Using what you have learned three (3) methods, identify the best project by the criteria of long term increase in value. (You do not need to do bout the urther research.) Convey your understanding of the Time Value of Money principles used or not used in the three (3) methods Review the video titled "NPV RR, MRR for Mac and PC Excer (located at hlips o ew youtube.com wach2 ECZCrYWGEbBc and previously listed in Week 4) to help you understand the foundational concepts Scenario Information Assume that two gas stations are for sale with the following cash flows: CF1 is the The methods are presented and the decision each indicates is given below Cash Flow in the first year, and CF2 is the This is the timeline and data used in calculating the Payback Period, Net Present Value, and The calculations are done for you. Your task is to select the best project and explain your decision Investment Sales Price CF Gas Station A $50,000 SO Gas Station B $50.000 50000 $25,000 $100,000 Three (3) Capital Budgeting Methods are presented 1. Payback Period: Gas Station A is paid back in 2 years: CF1 in year 1, and CF2 in year 2. Gas Station B is paid back in one (1) year. According to the payback period, when given the choice between two mutually exclusive projects, the investment paid back in the shortest time is selected. 2. Net Present Value: Consider the gas station example above under the NPV method, and a discount rate of 10% NPV gas station A- $100,0001+.10)2-$50,000 $32,644 NPV gas station B-$50,0001+.10) $25,0001+10)2 $50,000 $16,115 3. Internal Rate of Return: Assuming 10% is the cost of funds. The iRR for Station A is 4 1.421%, for Station B 36.602 Summary of the Three (3) Methods: Gas Station B should be selected, as the investment is returned in 1 period rather than 2 periods required for Gas Station A Under the NPV criteria, however, the decision favors gas station A, as it has the higher net present value. NPV is a measure of the value of the investment The IRR method favors Gas Station A, as it has a higher return, exceeding the cost of funds (10%) by the highest e 52 D End pgUp Prtscn Home 0