Finance

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TEAM 5 AYSEL NAZIROVA BANU ALIZADA KHAVAR GULIYEVA KONUL AHMADOVA SHAFIGA MAMMADZADA SADRADDIN RZAYEV- CAPTAIN 1. RAINBOW PRODUCTS A. Rainbow should not purchase this equipment by looking at NPV as the purchase criteria because it seems that although IRR may give the false impression of 14.15% return on investment, when those cash flows get discounted at the rate of cost of capital, the total payback comes to $34,054 which means we are actually paying $946 more today compared to sum of the benefits we will get through labor costs reduction for 15 years. Machine Savings per year | $5,000 | Machine cost | $35,000 | Machine lifetime (yrs) | 15 | Cost of Capital ( r ) | 12.00% | | | Payback period | 7.00 |…show more content…
In order for MBA Tech to invest $743.478 then Bean City will have to subsidize $256, 522. Subsidized Payback Period | Total Investment Required | City subsidization | 2.00 | ($743,478) | ($256,522) | C) Our Current NPV is -$37,666, and in order for MBATech to incur positive NPV of $75,000 Bean City will have to provide a subsidy of $112,666. 1 | 2 | 3 | 4 | $309,783 | $258,152 | $215,127 | $179,272 | | | | | | | | | Current NPV | Subsidized NPV | City subsidization | | ($37,666) | $75,000 | ($112,666) | | D) Our Current ARR on this project is 24%, in order to bring ARR to 40% Bean City will have to subsidize $173,880. | Current ARR | Subsidized ARR | City Subsidization | | 24% | 40% | ($173,880) | | | | | Average Annual Cash Flow | $371,739 | $371,739 | | Investment/# of years | $250,000 | $206,530 | | Investment/2 | $500,000 | $413,060 | | * The best option would be the Plan C with bringing NPV to $75,000, in this alternative we will only subsidize $112,666 as an initial investment. For other payment

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