Question
Your friend Juan has just won the Tec Giveaway. His prize is $2.5 Million MXN, tax-free. Juan knows that you are taking the Project Evaluation
Your friend Juan has just won the Tec Giveaway. His prize is $2.5 Million MXN, tax-free. Juan knows that you are taking the Project Evaluation and Management course, so he asks you for help to evaluate which is the best option to invest his money. The first project is to invest in the purchase of printers and computer equipment to open a printing business with a total investment cost of $2.5 million MXN. Juan is going to rent a place that has a monthly rental cost of $20,000. Juan makes his estimates and considers that he will have monthly expenses of $20,000 for salaries. He estimates that the monthly rent of the premises will increase by 5% each year. A salary increase of 4% per year is estimated. He calculates income of $80,000 per month the first year. Juan estimates an increase in his monthly income of 20% per year. Depreciation is 30% per year. The salvage value for the printers and equipment is $800,000 at the end of year 5 (before taxes). He considers that he pays 34% taxes (ISR). Consider TREMA 10% The second option is to buy 4 cars for Uber Black worth $2.5 Million. Juan must hire 4 drivers, considering his monthly salary for each driver of $12,000 per month. Juan estimates monthly income of $25,000 for each car the first year. Revenues increase 10% per year. Gas costs of $5,000 per month. Annual maintenance $10,000 for each car. Annual Automobile Insurance $15,0000 for each automobile. He considers an annual increase of 4% in the salary of drivers. 2% annual increase in gasoline. The cost of maintenance increases 3% each year. Depreciation is 20% per year. Salvage Value: $80,000 at the end of the year 5 (before taxes). Consider that he pays 34% taxes (ISR). Consider TREMA 10% Help Juan to make the best decision to invest his money. It is suggested that you use Excel to perform the calculations. a. Perform the calculation of Net Cash Flows for both projects. b. Calculate payback period for each project. c. Calculate NPV for each project d. Calculate IRR for each project and. Based on the project evaluation study you carried out, what recommendation would you give your friend Juan?
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